What is a credit report?
A credit report can be broken down into 6 parts.
»A Credit Report is a history of how well you repay debt
»A Credit Report shows how long you have had credit for
»A Credit Report shows your personal information such as names, addresses (past and present), employers, phone numbers, and any variances of such.
»A Credit Report shows the amount of available credit you have. (i.e. your buying power)
»A Credit Report shows how often you have applied for credit (inquiries)
»A Credit Report shows the different types of credit that you have.
What is a credit report used for?
»A credit report is used to determine the amount of risk in lending you money. The level of risk is determined by 6 main factors and calculated into a credit score. The most commonly used score is the FICO score, created by the Fair Isaac Company. This score ranges from 300 – 850, the higher the score, the less of a risk you are, and the lower the score the higher the risk. From the lender’s point of view, the lower your score is, the more likely you are to default on a loan. So they will be less likely to approve you for a loan, or if they do approve you, the interest rate charged on the loan will be very high because it’s a riskier investment for them. Think of it this way, if you want to invest your money you can put the money into a savings account or buy some stocks. The interest rate for the savings account will be low because it’s a very low risk investment; you are basically guaranteed a return. But, if you invest your money into the stock market, you will want a higher return on your investment because the risk of loss is so high. Banks look as us in pretty much the same way and if you want to pay a lower interest rate and save some money, you have to show the bank that you are a low risk investment. Currently, the only way to do that is to have a high credit score. Ultimately, it’s all about stability, we’ll discuss this later on.
Note: There are different types of FICO scores, Mortgage companies use the Classic FICO Score, Auto Lenders use the FICO Auto Industry Option Score. The difference is quite simple, the Classic FICO Score ranks previous mortgage accounts a little higher than all other accounts. And the Auto Industry Option Score puts more weight on previous auto loans than other accounts.
Who maintains Credit Reports?
Credit Reports are maintained by the Credit Reporting Agencies, also known as the Credit Bureaus. Although most people think that there are only 3 credit bureaus, there are actually a lot more than that. The 5 biggest credit reporting agencies are listed below. Click Here for more info about credit bureaus.
Where can I get a FREE Credit Report?
There are several websites that advertise free credit reports. Most of these sites are actually owned by the credit bureaus themselves, but still require a credit card and a subscription to give you access to the credit report.. FreeCreditReport.com (Experian), FreeCreditScore.com (Experian), TrueCredit.com (TransUnion), etc… But there’s only one place to get your totally free credit report, without a credit card or subscription, as mandated by the Fair Credit Reporting Act (FCRA). AnnualCreditReport.com.
Negative items listed on a credit report are notes of past financial mistakes or lending choices that will lower a consumer’s credit score. Credit bureaus track derogatory items to determine how financially reliable and responsible a borrower is.
While most negative items will stay on your credit report for seven years, bankruptcies will stay for ten years, hard inquiries will stay for two years and some unpaid student loans can stay forever.
If you have negative items listed on your credit report there are still ways to mitigate their effect on your credit score, and even remove them from your credit report. Here’s an overview of how long each negative item stays on your credit report, and how you may be able to remove the items from your credit report.
Hard Inquiries: Two Years
Hard inquiries generally stay on your credit report for two years. It’s difficult to avoid them because they occur when lenders run your credit for car loans, credit cards, mortgage loans and other application processes. You can minimize how frequently hard inquiries occur by doing research upfront and submitting loan applications to just one company at a time instead of many.
If you are looking to apply for a credit card, first research which credit card is right for you. Then, only apply for the card you are certain to qualify for.
One upside is if you’re comparing rates between lenders within a compact timeframe, the effect of multiple inquiries will only be counted as one. The timeframe is between 14 days and 45 days depending on the credit scoring model being used,
Collection Accounts, Late Payments and More: Seven Years
You can expect the following items to stay on record for about seven years:
Credit repair can minimize or even remove the impact of some of these items. For one thing, some items may be inaccurate. Also, the lender may not be able to substantiate the account. Take a charge-off for example. The creditor should be able to show things such as your payment history, the current balance of the account, the initial agreement between you and the creditor and, if a collection agency is involved, the right of the agency to pursue the debt and the transfer of debt ownership. If these standards are not met, the odds of you possibly getting that item removed before seven years pass are much higher.
Chapter 7 Bankruptcies: 10 Years A Chapter 7 bankruptcy stays on your credit report for up to 10 years. Although most of the individual accounts associated with the bankruptcy (such as a delinquent car loan) should disappear within seven years. The credit repair process can make sure the bankruptcy is reported accurately and that any accounts associated with it are being treated accordingly.
Unpaid Perkins Federal Student Loans: Forever
Unpaid Perkins Federal student loans might never come off your credit report. This is because the money you borrowed is money from the government. Not only that, but federal student loans cannot be discharged through bankruptcy. Unpaid private student loans come off after about seven years.
The Bottom Line
Creditors do not always send accurate information to the credit bureaus, and accounts can be linked to the wrong people. Credit repair services can help check for errors and make sure that creditors report accurate information on your credit reports to get you the most accurate score possible.
Credit scores give lenders a fast, objective measurement of your credit risk. Before the use of scoring, the credit granting process could be slow, inconsistent and unfairly biased. Credit scores – especially FICO® scores, have made big improvements in the credit process. Why?
People can get loans faster.
Scores can be delivered almost instantaneously, helping lenders speed up loan approvals. Today many credit decisions can be made within minutes. Even a mortgage application can be approved in hours instead of weeks for borrowers who score above a lender's "score cutoff". Scoring also allows retail stores, Internet sites and other lenders to make "instant credit" decisions.
Credit decisions are fairer.
Using credit scoring, lenders can focus only on the facts related to credit risk, rather than their personal feelings. Factors like your gender, race, religion, nationality and marital status are not considered by credit scoring.
Credit "mistakes" count for less.
If you have had poor credit performance in the past, credit scoring doesn't let that haunt you forever. Past credit problems fade as time passes and as recent good payment patterns show up on your credit report. Credit scoring weighs all of the credit-related information, both good and bad, in your credit report.
More credit is available.
Lenders who use credit scoring can approve more loans, because credit scoring gives them more precise information on which to base credit decisions. It allows lenders to identify individuals who are likely to perform well in the future, even though their credit report shows past problems. Even people whose scores are lower than a lender's cutoff for "automatic approval" benefit from scoring. Many lenders offer a choice of credit products geared to different risk levels. Most have their own separate guidelines, so if you are turned down by one lender, another may approve your loan. The use of credit scores gives lenders the confidence to offer credit to more people, since they have a better understanding of the risk they are taking on.
Credit rates are lower overall.
With more credit available, the cost of credit for borrowers decreases. Fewer bad loans to write off makes the credit granting process less costly for lenders, and they in turn are able to pass this savings on to customers in the form of overall lower interest rates. Without the use of credit scoring, interest rates would be significantly higher.
Did you know that credit repair is one of the most popular topics within the realm of consumer finance? It's true. Each day, thousands of people go online searching for information related to the repair of credit.
What is Credit Repair Anyway?
Before we go any further, we need to clear up some terminology on the subject of credit repair and credit scores. Unfortunately, there is a lot of confusion surrounding this subject, and much of that confusion comes from improper use of terminology.
Basically, the phrase credit repair could refer to one of two things:
So let's talk about each one of these topics in more detail, staring with corrections made to a credit report.
Correcting Your Credit Report
Did you know you actually have three different credit reports? It's true. You have one for each of the credit-reporting companies -- Experian, Equifax and TransUnion. The reports are not shared between these companies, but unique to each company. This means that you could have a mistake on credit report but not on the other two. Or you could have the same mistake on all three reports from all three companies.
In turn, your credit score is derived from the information found within your three credit reports. So as you might have guessed, you have three scores as well. It's a bit redundant, I know.
When you buy a home and apply for a mortgage loan, the mortgage lender will check your credit by requesting information from all three of the credit-reporting companies. So it's important for your credit reports to be accurate and free of errors. An error on one or more of your reports (such as a loan that's not yours) could potentially lower your credit score, thus lowering your chances of being qualified for a loan.
So this type of credit repair involves corrections made to your reports. Of course, the first thing you need to do is request copies of your credit report (see the home-buying tools to the right). Only then can you review the information for accuracy. If you find a mistake on one or more of your credit reports, you should submit a dispute on the company's website that produced the erroneous report.
So the first aspect of repairing credit refers to your reports. The second form of credit repair has to do with improving your credit score by changing your financial habits for the better. So let's talk about that next.
Improving Your Credit Score
In the first form of credit repair explained above, you are basically fixing administrative mistakes (or possible identity theft issues) that have led to errors on your credit report. It's important to get these things straightened out because the can negatively affect your credit score and possibly harm your chances of being qualified for a mortgage loan.
But what if your credit reports are accurate but your score is still low? In this scenario, you probably have something in your past that is dragging your credit score down. Maybe you have declared bankruptcy in the past, or had a home foreclosed upon, or you simply have a history of missing bill payments. To repair these types of credit problems, you must correct the financial behavior that led to the problem in the first place.
So in this form of credit repair we are talking about improving your scores by being financially responsible (more so than you were in the past). Paying your bills on time, reducing your debt and avoiding new lines of credit can all help you improve your score.
Let's summarize before moving on. Credit repair is a confusing subject for many home buyers because it can refer to two different things. When you make corrections to one or more of your credit reports, you are in a sense repairing your credit overall. Likewise, when you adopt better financial habits you are also engaging in a form of credit repair that will improve your score.
Establishing good credit makes life all-around easy. Want to buy a new car and need a loan? No problem. Want to buy a house? Mortgage lenders have no problem working with you.
In fact, by establishing and maintaining good credit, you’ll be able to get loans with lower interest rates, which saves you a lot of money in the long run.
Since credit is used for so many things in life, it’s important to have good credit. Establishing good credit now pays off in the long run when it comes time for the big financial decisions in life.
Here are a few things to keep in mind when it comes time to establishing credit (and why you really do not want bad credit).
Buying/Renting a Home
Mortgage lenders don’t want to award loans to anyone who might default on them. If you have bad credit, the mortgage lender will consider it risky to give you a mortgage.
What does this mean?
If you are approved for a loan, you’ll have a higher interest rate than those with good credit.
A higher interest rate on the loan means your monthly mortgage payment will be higher, and you’ll dole out more money than someone with good credit in the long-run. Plus, you run the risk of having your mortgage application turned down completely if you have bad credit.
Even if you’re not buying a house, good credit is still important when renting an apartment. Landlords will run a credit check, which affects whether or not they want to rent to you.
Landlords want to collect money on their properties, and want to know this money will be coming in consistently and on-time each month. If you don’t have good credit, you could be denied an apartment because your credit score is a glimpse into your level of financial responsibility.
Buying a Car
Unless you pay for your car entirely in cash, you need an auto loan. Your credit first affects whether or not you qualify for an auto loan.
Generally, applicants with good credit qualify for larger loan amounts with lower interest rates than those with bad credit.
Bad credit limits your options!
If you have bad credit, fewer lenders will work with you. If they do decide to, they will charge you a higher interest rate on your loan, which means a higher monthly payment and more money shelled out in the long run for your car.
Searching for a Job
Many employers conduct credit checks as part of the hiring process. If you haven’t demonstrated financial responsibility, many employers may be hesitant to hire you.
Maybe your level of debt is too high for the offered salary. This may come into play when you’re up for a promotion or raise, especially for financial-related or executive positions.
Starting a Business
Dreaming of starting your own business? If you have bad credit, you may need to rethink that dream for the time being. Most business startups require a sizable amount of cash that you might not have available.
In that case, you’ll need a small business loan. You need good credit to qualify for the business loan, and you’ll run into similar problems as you would with an auto loan or mortgage.
Paying the Bills
Credit is needed to establish utility service. Bet you didn’t know that. Your electric company says that you’re borrowing one month of electric service, which you’ll need to pay back each month.
Before turning on your electricity, the company checks your credit. This applies to most service utilities, such as cable, telephone, water and even cell phone service.
Since your credit is defined by how you’ve paid your bills in the past, many businesses use your credit to predict your future financial responsibility. Whenever you need to borrow money, or certain services, your credit is always called into question.
This means that establishing and maintaining good credit is crucial and affects virtually every aspect of your life as an adult. Do yourself a favor: establish good credit and maintain it for an easy, breezy financial future.
Are you struggling to repair your credit? That can feel like you’ve dug a hole so deep, it’s impossible to get yourself out. Don’t panic, just call in the experts.
Reach out to me today for more information on how I can help you start on the path to repairing your credit and taking your finances back.
Click Here to See How You Can begin Repairing Your Credit Today
According to a study done by the FTC (Federal Trade Commission) your credit reports has errors. These findings were announced today by the NCLC (National consumer Law Centers) and U.S. PIRG (US Public Interest Research Group) and confirm their own findings based on a previous study.
The study was released on a 60 minute expose on the Credit Reporting Agencies. The study found the following facts:
21% of Consumers have Verified Errors
13% had Errors that Effect there Credit Report
5% had errors that were serious enough to cause denied credit or pay a higher interest rate
Ed Mierzwinski US PIRG Consumer Program Director said that these finding were no surprise. Ed also stated “We’ve criticized the credit reporting industry for decades over unacceptable levels of seriously damaging mistakes, many of which are entirely preventable.”
Mierzwinski noted that the FTC study found that the percentage of serious errors was about 10 times the percentage reported by a May 2011 industry-funded study, which had claimed that only 0.51% of credit reports had errors serious enough to cause the consumer to be denied or pay more for credit.
These findings were said to be “pretty troubling information” and that the error rates were “pretty high.” according to FTC Chairman Jon Leibowitz.
Well apparently not much has changed in the last decade. Here is a C-SPAN video that was released in 2002 that outlines similar issues in a consumer groups report titled “Consumers and Credit Reports.”
Mr. Mierzwinski concluded that “Consumers need to be protected in the entire financial marketplace, at banks and non-banks, including credit bureaus, who have acted as reckless gatekeepers to financial and employment opportunity for too long.”
Howard Shelanski, Director of the FTC’s Bureau of Economics stated that “These are eye-opening numbers for American consumers,” “The results of this first-of-its-kind study make it clear that consumers should check their credit reports regularly. If they don’t, they are potentially putting their pocketbooks at risk.”
So what can you do to prevent these errors? Unfortunately there is no preventable measure to prevent errors from happening. Your best defense against the credit reporting agencies is taking a proactive approach by reviewing your credit report on quarterly bases for errors.
To review your credit reports go to AnnualCreditReport.com. This website was set up by the 3 credit reporting agencies in order to be in compliance with FACTA allowing consumers access to 3 free credit reports per year.
Tens of millions of Americans live their normal, everyday lives totally oblivious to their credit score, and the positive or negative consequences it can have on their financial future. According to the credit bureau Experian, over one third of Americans had a credit score under 600 in 2016 which is the number that indicates bad credit. Bad credit can be caused by poor financial decisions, unexpected expenses/emergencies or more likely, the lack of knowledge of the complicated process of managing a credit score. Millions of people have never even checked their credit reports even though it affects their daily financial life.
Although managing your credit can be a challenging process to handle yourself the consequences of ignoring it can be devastating financially. Poor credit can keep you from buying the new car you need, the dream home you’ve always wanted, or even the loan you need to take out to put your child through college.
Now even if you are lucky enough to be approved for your loan, car, or home with bad credit your credit score will still affect the interest rates that you will be forced to pay back. This difference is only a mere percentage point or two, but when you are dealing with six to seven figure costs, the difference will be in the tens of thousands.
This could be the difference in paying an extra $200 dollars a month on your mortgage for the next 40 years of your life!
Your credit can also have side effects that affect your everyday life as well. Having bad credit carries certain stigmas and stereotypes with you. For example, someone with bad credit will have a tougher time finding work, higher credit card fees, and higher car insurance rates. This is due to companies generalizing those with bad credit; if you mishandle your own money who is to say you won’t be a reckless driver or careless worker.
Unless you are someone who always carries cash on them credit cards will cost you extra, too. Credit card companies will charge those with good credit significantly less on interest rates. Having bad credit could cost paying an extra five percent on everything you put on your card. Credit is even effecting your weekly trip to buy groceries.
Because credit is essential in the process of major life choices like going to college, using a credit card, and buying a car or home, having bad credit will certainly cost you hundreds of thousands of dollars over the course of your life. The gap between living comfortably or constantly in debt can revolve around having good credit or not.
I invite you to clink on the link below to discover the way that FES can get you to financial freedom to enjoy the premiums of life with good a good credit score!
To Your Financial Future,
There’s no denying that we are a society that’s addicted to instant gratification and we suffer from lack of focus. When people talk about credit restoration, it’s often with the pretense that it’s got to happen quick and they want minimal involvement. To RESTORE your credit, you’re going to have to do 2 things, first, lose the instant gratification mindset, and secondly, take a focused, hands-on approach. This will help create short term and long-term results.
Restoring your credit should not be looked at as a FAST or ONE-TIME event.
Now this doesn’t mean that you can’t restore your credit quickly, that will depend on the condition of the credit at the start of the credit restoration process. As well there will be times in the future where you will need to tweak somethings to improve your credit score. Perhaps your preparing for a purchase of a new home or car. So, you must approach your credit from a long-term perspective, your credit and credit score is going to be with you for the rest of your life and is changing all the time.
Your credit score has played a role in everything you’ve done in life till this point and will continue to play a role in your life. Everything from housing, to transportation, getting a job, cell phones, how much you pay for utilities and insurances, not to mention other missed opportunities. It will determine what you can or cannot do today and in the future! It is one of the most important pieces of your financial picture. It must be a made priority.
Think of your credit like would your child. What would happen if you left your child unattended and never checked on them. What if you never feed them? What if you never taught them anything? That probably wouldn’t turn out well. Unfortunately, that’s exactly how a lot of people treat their credit, for years!
Your credit is no different than a child. You must attend it, feed it, learn about it, keep an eye on it! If you do that, you will most likely have GREAT credit and credit score! The good news is, regardless of what your current credit situation is, you can start to change it today!
If you want a GREAT credit score then EDUCATE yourself about how credit works and how to best take care of it for the future use. Your credit score is your child. It needs your attention to be the best it can be. When that happens, the pay-off will be HUGE!
RIGHT 1: The right to view your credit report.
This portion of the law requires that the credit reporting agencies supply you with a full report on your credit transactions at any time you request one. There is no charge for the first credit report you request annually. For every subsequent credit report you request, the credit reporting agencies are allowed to charge a reasonable fee. However, if you have recently been rejected for credit you are entitled to a free credit report even if you have already requested one that year.
RIGHT 2: The right to know who has inquired about your credit.
The law allows you to know every bank, credit card company, employer, etc. who has requested a copy of your credit report. This even includes all the times the credit reporting agency has pulled your file.
RIGHT 3: The right to request verification of information you believe is incorrect.
This allows you to have a negative entry checked. This guarantees that every time you tell a credit reporting agency that an item is incorrect, they will investigate the item. Without this portion of the law, the credit bureaus would be able to refuse to investigate your disputes.
RIGHT 4: The right to insert missing data into your credit file.
Often you will have credit granted to you that never makes its way into your credit report. This portion of the law allows you to report all this good credit information to the credit reporting agencies and have it entered into your credit report.
RIGHT 5: The right to automatically remove information from your credit report that is over seven years old (10 for bankruptcy).
This guarantees that past financial indiscretions do not follow you for the rest of your life.
RIGHT 6: The right to place your personal statement in your credit report.
Some people have negative credit due to extraordinary events such as loss of a job, sickness, divorce, etc. This law allows you to have a written statement of 100 words or fewer placed in your credit report. This can be used to explain to future creditors what caused the bad credit and why it was a one-time occurrence.
RIGHT 7: The right to privacy of the information in your credit report from anyone other than legitimate members of credit reporting agency.
This states that no one can look at your credit report without your permission. That is why creditors have you sign a form allowing them to examine your credit report. The only exception to this right is the credit reporting agencies. They are allowed to look at your credit report without your permission as long as it is for legitimate business purposes.
RIGHT 8: The right to have your credit report transferred from one area to another any time you have a relocation.
This provision of the law guarantees that your credit history follows you wherever you go. This allows your hard-earned good credit to follow you all over the United States. Unfortunately, it also means that any bad credit you have also follows you across the country.
RIGHT 9: The right to use the small claims court system to resolve any disputes with the credit bureaus about incorrect or inaccurate information in your credit report.
This gives you the right to your day in court. If something on your credit report is inaccurate and you can’t get it repaired through the credit repair process, you have the right to present your evidence in a court of law to resolve the dispute.
RIGHT 10: The right to know exactly why you were refused credit.
This means the creditor who refused you credit must inform you exactly why you were turned down. This request must be made by you to the creditor within 10 days of your being turned down.
Written by: Kristy Welsh
Credit repair information and credit repair misinformation is available on the Internet and even more bad advice can be had when listening to friends and family. One person says to do this and then another says to do that, when in actuality, you really have to look at your own situation and determine what credit repair tactics will work for you.
There may be some financial moves you have made, or are going to make, that at first glance may seem harmless but in the long run can really do a number on your credit. You might not realize the significant fall-out to the following seemingly insignificant financial moves until it is too late. This article is meant to set the record straight and try to steer you in the right direction when is comes to repairing your credit. Here we touch on five of the most common mistakes people make when fixing their credit which leads to lowering their credit score.
Keeping a Zero Balance
I know we beat it into your head that you should be paying off your debts, but, paying off a credit card completely every month does not help your credit score - it doesn't hurt it either. When you pay off your card and have a zero balance on this line of credit, it does not factor into your credit utilization ratio. This ratio is the percentage of your credit limit that is being used and factors into 30 percent of your credit score. Here is how to calculate your credit utilization ratio:
Locate your credit balance and credit limit on your last billing statement.
Divide the credit card balance by the credit card limit.
Multiply that number by 100. The lower this number, the better.
Leaving a small balance on your card each month will help to increase your credit score. Oddly, your credit score can actually drop when you bring a card balance down to zero. Go figure!
Keeping a High Balance
Now on the other side of the spectrum, having high balances on your credit cards is not good for your score either. As we mentioned already, the amount you owe on your accounts determines about 30 percent of your credit score. Lenders consider those who use a low percentage of their credit, say around 35 percent or less, to be a low credit risk. And being a low credit risk means getting lower interest rates on your loans.
Spending 80 to 90 percent of your available credit limit will negatively affect your credit score. As we saw in the calculations above, having a high credit card balance will equate to having a higher credit utilization ratio which will lower your credit score. Moral of the story, keep you balances low but not at zero.
Negotiate a Lower Annual Percentage Rate
Negotiating a lower annual percentage rate on your credit card may seem like a smart move for cutting expenses and boosting your savings account, but when you do, ensure that your creditor doesn't reduce your credit limit. If that happens, it could affect your credit utilization ratio and lead to a drop in points.
Closing a Credit Card Account
If you've scrimped and struggled to pay off a card, your initial reaction may be to cut up the plastic and close the account. Resist the urge. Various factors are taken into account when calculating your creditworthiness, and 15 percent of your score is determined by the length of your credit history. By closing an account, especially an older one, you shorten your credit history. The more established accounts you have, the higher your credit score.
Credit card companies also look at how much of your available credit you are using, i.e. your credit utilization rate. As we mentioned before, they like to see 35 percent or less of your credit in use at any one time. Paying off a credit card and leaving it open improves your utilization score, but closing it could do just the opposite.
Applying for New Credit
We are not saying to never apply for new credit, just make sure to do so very gingerly. Every time you apply for a new credit card, car loan, or cell phone plan, someone is going to pull your credit. This credit inquiry constitutes a "hard inquiry" which is likely to ding your credit score.
So, if you are looking for a good interest rate, which means you are rate shopping, make sure every lender you visit is not pulling your credit first. Make your final decision BEFORE having your credit pulled by the lender so that way there will only be one hard inquiry on your credit report.
It may seem like maintaining a good credit score is hopeless, but there are ideals you can strive for to achieve a good credit rating. Naturally, some of the above mentioned transactions are easier to avoid than others. By knowing the threat they pose to your credit, you can better understand when these moves really make sense. To sum it up:
Keeping these five common mistakes in mind while you are repairing your credit, will save you lots of anguish down the road. There is nothing more frustrating than thinking you are doing the right things when in actuality, it is hurting your credit score.