Having a high Credit Score can make a difference of up to 18% in loan repayment costs. For example, on a 30-year, $150,000 fixed rate mortgage, a borrower with the best credit score, 760-850, will pay 5.59%, or $860 per month, while someone in the worst score range will pay 7.18%, or $1,016 per month.
This can make a big difference to the household budget, so it's to your advantage to keep your credit score as low as possible.
The 3 major credit bureaus, Experian, Equifax and Trans Union are similar and feature a "Credit Score", which is derived from credit report information submitted to them about you.
Under the Equal Credit Opportunity Act, a credit scoring system may not use characteristics such as race, sex, marital status, national origin or religion as factors, though they are allowed to use age.
Credit scores are determined by your bill-paying history, the number and type of accounts you have, late payments, collection actions, and outstanding debt.
The total number of points reflects how likely you are, statistically-speaking, to pay back a loan. If you are denied credit, the Equal Credit Opportunity Act forces the creditor to tell you the specific reasons your loan application was denied if you ask within 60 days.
Acceptable reasons include high balances on charge cards, or bad employment history. Unacceptable reasons include vague excuses such as "You didn't meet our minimum standards".
Sometimes you can be denied credit because of information on a credit report. The Fair Credit Reporting Act requires the creditor to give you the contact information of the credit report agency supplying the information.
The credit reporting agency can give you the information on your report, but only the lender can tell you why this led to your application being refused.
However your credit report may include inaccurate or incomplete information (credit records). Identity theft is a growing problem, and can take up to a year to resolve. Nearly 10 million people fall victim to identity theft each year, costing consumers $5 billion and businesses $48 billion, according to the Federal Trade Commission.
In this situation you have to send letters to every one of the credit bureaus. Also learn your credit rights by familiarizing yourself with the Fair Credit Reporting Act (FRCA).
The FCRA gives you the right to dispute inaccuracies and omissions, and it requires credit bureaus to investigate your complaint (generally in thirty days), send you a prompt response and correct any errors.
The law as well requires the source of inaccurate information (such as a bank) to correct the record at the credit bureaus to which it initially provided the erroneous information.
Consumers working on their credit reports say many times their letters are ignored by credit bureaus. Consumers say even with proof a credit record isn't theirs, its removal from their credit report can take 3 or even 4 challenge letters, because the credit bureaus will have only corrected the facts in their own files and will not have updated the credit report.
Send your dispute letter by REGISTED MAIL. Credit companies will respond faster if they know you can prove you filed a complaint on a certain date.
Keep a record of when you sent the dispute letters and what date you should expect a response. If you have received no defense to your claim after thirty to thirty seven days, send another registered letter requesting an updated credit report and demanding the disputed credit record be deleted.
If the bureaus don't reply in the thirty days, it must be that the information they had on file was either inaccurate or unverifiable. In either case, based on data from the Fair Credit Reporting Act, the credit record must be immediately deleted from your credit report.
A few consumers have eliminated negative marks on credit reports just by going through this process of disputing credit records many times.
Since some creditors will not take the time to respond, you can sometimes win by default. Usually a bit of progress will be made with each challenge.Remember, the credit bureau would like you to quit bothering them because if you are not disputing the credit report,they can legally carry on selling it as profitable information.
To obtain your credit score, correct your credit rating, or even avoid becoming a Victim of Identity Theft.
Credit scores govern so much of our financial life, it is amazing that few of us really know what to do if we suddenly find out that we have a bad credit score. Bad credit can shut you out of mortgages, car notes, credit cards, and other loans you might need. In fact, even mediocre credit can prevent you from getting the credit you need! If you have bad credit, you need to know two main things. First, you need to know that bad credit is not like a tattoo. It will wear off after a while. The second thing you need to know is that it will only wear off if you do the right things (and stop doing the wrong ones).
In the U.S., consumers have both a credit report and a credit score. Your credit report is actually a fairly complex file of financial transactions that provides information on your various loans (credit cards, mortgages), how you've handled credit, along with information on where you work, what you earn, and any court cases you're involved in. A credit score is a number, typically between 300 and 850, that gives an overall "snapshot" of how you manage your finances.
In the U.S., Fair Issac & Company came up with a system to translate the bulk of data in the credit report into the snapshot credit score. Today, those scores are called FICO scores (for the name of the company that invented them). Three major credit bureaus maintain credit records: TransUnion, Experian, and Equifax. They all use a form of the FICO score.
The good thing about credit reports is that they move forward with the time. The good thing about credit scores is that they balance what you do right against what you do wrong. This means that if you do more things right than wrong, even starting today, you can eventually clean up your credit.
Fixing your credit report is slow, steady work. You can't do it overnight. But you can do it. The opposite is also true. Good credit today will not last if you don't keep doing the right things.
So what should you be doing to have a good credit report and good credit score?
The FICO score balances a lot of different activities. If you understand how the credit bureaus think, you'll know how to improve your scores (and you'll be wiser in how you deal with money).
First, pay bills on time and keep paying them on time. If you're already in arrears, work out a plan to get back on track and keep up with payments. Late payments can really hurt your score. One late payment can offset many on-time payments!
If you have credit cards, try to keep no or a low balance. A maxed-out card is bad for the report, but a card with a reasonable balance is fine. Reasonable is not a dollar amount! What's reasonable for one is not reasonable for another. There should always be a big difference between the amount of credit at your disposal and the amount of credit you're actually using at any one time.
If you have a lot of credit card debt, it is better to consolidate it into one large debt than keep getting new cards and moving the debt around. In fact, the website http://myfico.com says that if you have a certain amount of debt, it will be better for your credit score if it's a larger amount on one card than the same amount on several cards.
On the other hand, don't get a bunch of credit cards you don't plan on using. Having a bunch of available credit that is never used can hurt your score; it looks like you're preparing a way to go head-over-heels into debt.
If you do apply for new cards or loans, do not go crazy. A sudden increase in credit card applications can lower your score. The best strategy is to apply for new credit and loans only as needed.
If you had a financial disaster, whether a bill went to collections, a house went into foreclosure, you defaulted on a note, or you went bankrupt, be aware that the information about that problem can stay on your report for years, even if you have paid off the debt or otherwise managed the problem. A collection account can stay on your report for seven years.
Seven years may seem like a long time, but you can eventually "outlive" a bad financial mistake. If you had a bankruptcy 20 years ago, that information will no longer be on your credit report. In fact, you could have sterling credit 20 years later despite that financial misstep.
Besides that, lenders are under no particular legal or financial obligation to even look at or consider your credit report or credit score. Lenders are free to lend to anyone they choose. Most lenders do, in fact, pull a credit report (that's called an "inquiry") but they will likely consider other factors, including your income, the type of loan, and whether or not they have had previous dealings with you. (That latter information can be bad news if you've ever not paid them on time-another good reason to keep your bills paid on time!)
Credit scores change constantly. Every single month, information is updated. Do enough things right, and the good reports will outweigh the bad. That gets encapsulated into the score, which is really just a snapshot of your overall credit health on that day.
Your credit report is available to you free once a year on request and you can also get a free copy if you are ever turned down for a mortgage; you can also get your credit report at any time for a nominal fee. My favorite resource for getting your credit report is the website at http://www.annualcreditreport.com. They work with all three credit agencies and can help you get your yearly free report and provide some general information on credit reporting.
Lenders are in the business of lending money. They don't want to do that foolishly, but they don't want to keep credit-worthy borrowers away, either. The credit report is designed to be accurate and reliable to help borrowers get the credit they need (and can manage responsibly) and advise lenders as to which consumers are the most likely to repay a debt.
Both Frank Vanderlugt & Mandy Karlik are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Mandy Karlik has sinced written about articles on various topics from Family Travel, Travel and Leisure and Finances. Did you know that debt consolidation is one of the few programs to manage overwhelming debt that can actually help rather than hurt your credit score? Debt consolidation is not for everyone in debt and, some people may not qualify for it. To learn more ab. Mandy Karlik's top article generates over 8100 views. to your Favourites.