National Debt Relief - BBB Accredited Business - Get Relief From Unsecured Credit Card Debt, Medical Bills And Student Loans

5 Steps To Make A Credit Check Work In Your Favor

woman looking at files and frustratedAre you planning to buy a home this year? Or maybe buy a car? Whatever it is that you want to purchase requires you to be concerned about your credit report, as long as it will involve a loan application.

Before a lender approves of your loan application, you need to go through a credit check. This is when they look at your credit report to compute your credit score. The whole purpose is to know if you are credit worthy or not. For instance, according to the latest mortgage law provisions published on ConsumerFinance.gov, one of the financial information that lenders should look into is the credit history of the borrower. This is to filter out the borrowers who has a high probability of not paying back their mortgage loan.

The credit check will help lenders determine if you can be trusted with a loan. In case you have a not so favorable credit report, that does not necessarily mean you will be disapproved immediately. The lender will try to protect themselves by imposing a high interest on your loan. While that will still get you the finances you applied for, it will cost you more money because of the interest.

5 steps to make credit inquiries work to your advantage

In case you applied for a loan or a new credit account, you may want to make sure that you will pass the credit inquiry that you will be subjected to. This way, you can make assumptions as to whether you will be approved of the loan or not.

So before they conduct a credit check on you, make sure you go through these 5 steps.

Step 1: Check your own credit report. The major credit bureaus will ask you to pay for a copy of your credit report but they are also mandated to give you one free copy every year. If you want to access them, you can go to AnnualCreditReport.com to download your free copy. Ideally, you want to do this a few months before you actually file your loan application. That way, you can read your credit report before the lender get access to it.

Step 2: See if there are errors and file a dispute against it. This is the reason why you want to get your report a few months before your application. In case there are errors, you can have it disputed so the credit bureaus can change it. A study done by the Federal Trade Commission revealed that one out of five consumers have reported that they found errors in their credit report. According to the study shown on the FTC.gov, this could have led them to pay more on loans due to a higher interest rate. In case you find out that you need to dispute an entry on your report, you should send a letter to the credit bureau involved. Send a copy of the document proving that the entry is wrong too. Once sent, you have to wait for them to respond, investigate and take action. That action may be to prove that their records are correct or to revise your report as per your data. If you are proven to be correct, they should send you a free copy of your credit report that contains the right information.

Step 3: Calculate your credit score. The second step is to check your credit score. You may want to calculate it to know how you will fare in your loan application. This is the grading system that will allow the lender to determine your interest rate. If it is high, then you are considered to be a low risk borrower. That will keep your interest rate low because your lenders will not feel the need to protect themselves from the possibility of you failing to pay for your debts. Your score will help you determine how much you need to improve to get the rate that is most affordable to you.

Step 4: Send bigger payments towards your debts. The next part of your credit check is to pay off your debts significantly. If you followed our suggestion to check your report a few months before the loan application, you should have some time to make significant contributions towards your debts. Timely payments and a lower debt balance will help improve your credit report so it looks more appealing to lenders.

Step 5: Make sure there are no unauthorized charges or new accounts/inquiries. Since you are already holding your credit report, you may want to double check for any unauthorized or suspicious entries that could show that you are a victim of identity theft. You want to report this as soon as possible to keep them from stealing your money.

By doing your own credit check before the lender, you are giving yourself the chance to improve your credit score. That is a great way for you to prepare for your upcoming loan.

Who checks your credit report

Apart from lenders, there are also other people or organizations who are interested in your credit report. This is why credit scores have become king. If you will be transacting with any of them, you may want to conduct a credit check on yourself too.

  • Creditors. If you will open a new credit card account, these companies will check your credit report before approving your application.

  • Landlords/property owners. If you will be leasing a home or any property, the owner or landlord will naturally want to know your payment behavior. That will tell them how well you can be expected to pay them rent every month.

  • Insurance companies. This also involves a regular payment scheme so it is but natural for them to want to check out your payment behavior. In case your credit score is low, you can expect that they will give you higher premiums.

  • Utility companies. They will also do a credit check on you to see how well you will pay. Most of the time, this check is done in order for them to determine if deposit is needed from you or not. If your credit report is unfavorable, then you can expect to be asked to put down a deposit.

  • Collection agencies. This is simply to determine if you are financially hard-up as you claimed you are.

  • Employers. Although you are not paying your employer, the credit report will say a lot about your character. It will help them assume how responsible, organized and disciplined you are when it comes to your finances.

  • Government agencies. They require this from you in case you are asking for some assistance – especially when it comes to finances. It is usually to check your eligibility. Sometimes, it is reviewed for national security purposes.

  • Court. These include judgement creditors or bankruptcy courts. They use this as part of the documents to help decide on your case – or to see if creditors or collectors should start collecting from you.

Anyone who has a court order to get your credit report can also acquire it. Apart from that, no one can access your report.

When is the best time to look at your credit report

Apart from borrowing money, there are also other instances wherein you have to do a credit check on yourself. What you don’t know about your credit score can hurt you so it pays to take a look at it every now and then. Here are the instances when you have to look at your credit report.

  • Three times a year. This is your regular check ups to look for errors or any unauthorized activity on your report. You don’t really have to pay for anything because you get one free report from each of the major credit bureaus (TransUnion, Equifax, Experian) every year. You can download it from the Annual Credit Report website.

  • After a credit disapproval. When you are declined of any application, you may want to view your report to see why you are not approved. That way, you can ask them to reconsider in case the reason for the disapproval is wrong.

  • Possible identity theft. You also want to check it if your credit card or information is stolen and you think you are in danger of identity theft. This is your way to monitor if they are using your details already.

  • Credit repair. You also want to check your report, obviously, if you want to improve your credit score. You need to look at your current situation to figure out the improvement that needs to be made.

In case you find out that your credit score is low, here is a video from National Debt Relief that will reveal the fastest way you can increase your score.

Think You Have Good Credit? Know The 8 Credit Score Ranges To Be Sure

checklistAre you confused about your credit score? Well you are not alone. A lot of Americans are actually having a hard time understanding this score. In fact, based on a news release from ConsumerFed.org, ⅖ of consumers are unaware that mortgage lenders and credit card issuers refer to this number before making decisions. At least, ⅖ of the respondents of the survey initiated by VantageScore Solutions and the Consumer Federation of America. The same number of respondents also think that age and marital status are factors to consider when calculating their credit score.

Obviously, there is a need to teach consumers about this financial topic and why don’t we start with the different credit score ranges? Now you may be wondering, why are we concentrating on this? Why not something about how it is computed?

It is simple. You want to know about the various ranges of credit scores because they come from different companies. Each of them use varying computations. If you want to know if you have a high score or not, you have to understand where it will be coming from.

What are the 8 ranges of credit score

First of all, you may be wondering, why do we have so many credit score ranges anyway? According to the explanation from CreditKarma.com, it all began with just one – the FICO score. It is the reason why this remains to be the most popular model for computing credit scores. The FICO score was developed by Fair Isaacs Company back in the 1970’s to standardize the credit decisions done in the financial industry. Over the years, other credit score companies adapted the original algorithm from the FICO model and created their own by improving it as they see fit. The main runners in these improvements and credit score variations come from the three major credit bureaus – TransUnion, Experian and Equifax.

So what are the popular credit score ranges that you need to know about? Make sure to familiarize yourself with these because what you don’t know about your credit score can hurt you.

Fico Classic Score (300 to 850)

This score is developed by the Fair Isaac Company. This is one of the three type of scores that can be availed from this company. The higher the score is, the better it will be for the consumer. This is usually availed by lenders from the three credit bureaus while consumers typically go directly to Fair Isaac. This is the most popular range there is – even with other companies. It is typically used by credit card companies, lenders (auto, mortgage and student loans), banks, insurance companies, credit unions and other financial companies.

FICO Industry Option Score (250 to 925)

Obviously, this is another score coming from the Fair Isaac Corporation. Just like the Classic, this score is also sold to lender through the three major credit bureaus. However, this is not available to be directly availed by consumers. Those who get this score are usually the auto lenders and creditors from credit card companies – although there are lenders who avail of this too.

Fico NextGen Score (150 to 950)

This is the last of the three credit score ranges that is provided by the Fair Isaac Corporation. Just like the Industry Option, this is available to lenders through the 3 credit report agencies (credit bureaus) but it is not available to consumers directly. The primary user of this are credit card companies but other lenders can also look at this score.

VantageScore (1.0 and 2.0: 501 to 990) and (3.0: 300 to 850)

This was the old version of the VantageScore that is provided by VantageScore Solutions. The three credit bureaus actually invested in this because they wanted an alternative to the FICO Score. This score has an unusual range and according to the company, it required lenders and creditors to change some of their rules. That is the main reason why a lot of them opted not to use it. In fact, only 10% use this for their lending decisions. The 3.0 is the new version of the VantageScore that was only recently released in 2013. Lenders get their credit scores from the three credit bureaus but only Equifax and TransUnion make it available to consumers. Most financial institutions use this already when making their lending decisions.

TransUnion Risk Model (300 to 850)

This used to be known as TransRisk. Obviously, this was developed by TransUnion and unlike the previous credit score ranges, this is only available through this company. Consumers can avail of this score through other sites as long as they are owned or affiliated with TransUnion. The main clients of this score are credit companies, debt collection agencies, auto lenders, insurance companies and most large banks.

PLUS Score (330 to 830)

Experian developed this score and surprisingly, this is not made available to lenders. The main clients of this credit score are the consumers themselves. The main purpose of this score is to educate consumers and help them improve their scores. They can avail of this score through websites owned or affiliated with Experian.

Experian National Equivalency Score (360 to 840)

This is another score that is developed by Experian and it can be availed by lenders through them alone. For consumers, they can avail of this credit score but only through the Credit Sesame website – for free. Most financial lending and credit institutions avail of this but they are also joined by lawyers, property management companies and even the federal government.

Equifax Credit Score (280 to 850)

As the name carries it, Equifax developed this credit score and lenders can avail of this with them. It is also available to consumers through Equifax too. The company is secretive as to who uses it but it can be assumed that financial institutions use it for variety.

Regardless of the company computing your credit score, it is important to note that all of them refer to the same source – your credit report.

What does a high credit score mean?

When you are trying to buy a home and you have a low credit score, you know that it will cost you a low interest rate. So the main purpose of knowing all of these data is to eventually improve and maintain a high credit score.

But what exactly does a high score mean?

Based on the infographic from Credit.org, the FICO score of 680 and above is a good score. It will allow consumers to get a 4.2% on a housing loan. In fact, the median score in the US is right 723 – a bit above this range. If the score of the consumer is 740 and above, that is considered as excellent. It can land them a 3.9% on their mortgage rate. The lowest range of score at 300 to 550 means the consumer will get a 9.5% on their home loan.

Obviously, with the varying credit score ranges, you know that the “high” requirement will vary among them. For instance, the 800 score of PLUS Score may not be good enough for a FICO NextGen Score – since their ceiling is until 950. You have to consider where your score is being taken from so you can understand how you can improve it.

So before you can really start working on your credit score, know the company that computed it so you will know where it falls under the credit score range it is taken from.

Tips To Help Increase Your Credit Score Without Using A Credit Card

woman looking at documentsA lot of people are asking: will opening more credit cards improve my credit score? This is actually a good question. Some people are convinced that this is the only way that you can start building up your credit score.

Here’s the thing. Your credit score is dependent on your credit report. This report holds details about any debt that you have. So if you have not taken any debt yet, then what information can you place on your report? And here’s where it gets more complicated: you need a credit score to be able to take on any debt. Given all of these requirements, how can you hope to build up your credit score?

This is where credit cards are “supposedly” there to help out. However, this is something that people are hesitating. After all, credit card debt put a lot of people under some serious financial trouble. A lot of our youth witnessed how it made the life of their parents and grandparents difficult. They do not want to follow the same footsteps.

Different ways to build your credit ranking without needing a card

Well if you do not want to follow their credit card mistakes, then you don’t have to. You are probably thinking about the next question by now: how will you build up your credit score if you cannot get any type of debt?

Here’s an important truth that you need to know: there are options to get a loan without the need for a credit score. It is limited, but there are other options. Let us list them down for you.

  • Get a federal student loan. If you are young and you are still in school, you may want to start working on your credit score by taking on a student loan. The approval of this loan does not really depend on your credit score. These do not require a credit check. Of course, for it to help you improve your credit standing means you have to know how to deal with student loan debt. That basically means knowing how to pay it back properly. Try not to be late, pay as much as you can – these are the usual tips that you will get so your student loan can help you build up a high score.

  • Try to apply for an installment loan. Sometimes, retailers will allow you to purchase a product and pay for it in installment. The great thing about this option is you are expected to pay for it over a long period of time. That will help you build up your credit score without making the payment too much of a burden. The important thing that creditors and lenders are looking for in your score is how well you can be trusted to pay back what they will allow you to borrow. That is the core purpose of this financial measurement. If you do good in this loan, then you can expect to have a good credit score.

  • Loan money from a credit union. First and foremost, this will require you to be a member. Look for a credit union that you can qualify to join and open an account with them. They operate in the same way as a bank – but instead of being governed by a board of directors, it is managed by the members themselves (more specifically appointed members). When you are finally a member, you can opt to get a small loan to help you work on your credit report. Based on the September 2013 data released by the Credit Union National Association through their site CUNA.org, credit unions have loaned an amount worth $642 billion. They have an asset worth $1.06 trillion. This proves that they are capable of loaning you money. If they decline because you do not have any background on debt, you can opt to get a secured loan. That means your loan is backed by the money in your account. They should be able to give you approval then.

  • Look into peer to peer loans. These are companies that operate online and connect you to private individuals who are willing to lend you money. No bank or financial institution is involved here. Also known as social lending, this is a great option for you to get the loan that will help you build up your score. Since it operated online, the overhead costs will not be as high for the companies managing them. That means they are not compelled to get a high interest rate from you. Although they look into your credit score, it will not cost you a very high score.

  • Request existing companies to file on your credit report. If you have rent, utilities and even phone bills that are recurring every month, you can ask them to file a credit report on your behalf. They are allowed to do so but it will be more of a favor for you than out of obligation. That should help boost your credit score. At least, it will if you had never been late on your payments.

These are some of the options that you have. There are other choices but we do not really recommend them – or we haven’t heard about them yet.

If you really want to use a card to improve your credit report…

In case some of these are not appealing to you, that is alright. You can still use credit cards to help you arrive at the high credit score that you are aiming for. Just make sure you will not commit the biggest credit mistake that you can ever make – and that is to bury yourself in credit card debt.

Just remember that the actual credit card ownership is not how you will get a good score. It is your attitude towards it. You have to know how you will use these cards so you can be viewed as a creditworthy consumer. Here are some tips that we have for you to help ensure that being a cardholder will really benefit your credit report.

Pay your dues on time. The most important thing that you can do to help your credit score go up is to avoid late payments. According to the information provided in MyFICO.com, late payments can affect your score based on how recent, severe or frequent you do them. Basically, they are saying that a recent late payment can put more damage in your score than a frequent late payments in the past. So try not to be late if you really want to boost your score.

Budget every credit card use. To help you avoid late payments, one tip that we have for you is to include your credit card use in your budget plan. That means allocating an amount that you can afford. You have to plan how much you can charge on your card to avoid overusing it. Also, it will help you put aside the money that will allow you to pay for your full balance at the end of every month.

Know how to use your card properly. Lastly, you have to educate yourself on how you can use your credit card properly. That means you have to understand what the interest is and how it can affect the finance charges on your balance. You have to know how the finance charge, late payment fees and other charges can grow your debt significantly. Also, you have to understand how the grace period can keep you from credit card debt.

Understand that credit cards are quite harmless if you know how to use it properly. You can own it, use to have a high credit score and still end up with zero balance every month. It is not about the debt itself that will build up your credit score. It is how you pay for it.

Consumers Are In Need Of Credit Score Education

woman looking at a documentAre you confused about your credit score? If you are, then you may want to pay attention to this article because we will try to give you some of the basic credit score education that you need.

A consumer’s credit score is taken from their credit report. This report holds vital information about you. It shows a list of your credit accounts plus any good and bad behavior that you have displayed. In fact, that is the whole purpose of your score. It says a lot about your credit behavior. It is a number that represents your debt situation and how you rank at managing it. Simply put, when you are in a bad financial situation, chances are, you have a low credit score.

People usually encounter this score when they are trying to apply for a new credit account. Lenders and credit card companies will always check if a consumer is a responsible credit holder. Anyone who will let you borrow their money will naturally be interested in how you will pay it back. It does not matter if you have the income to pay your dues. Some people borrow money and forgets about it. This is something that lenders and creditors want to avoid.

Apart from loans and new credit accounts, employers will also look at your credit score before hiring you. Utility companies and even landlords can use this information to check out your credit behavior. These inquiries about you makes credit score education all the more important.

Study shows a lot of consumers do not understand credit scores

Unfortunately, everyone may know about credit scores but not all of them fully understand it. An article recently published by CNN.com discussed a survey done by VantageScore – one of the providers of credit score information. Apparently, lenders follow the Dodd-Frank Act by providing consumers with a disclosure notice to explain a credit application disapproval, but most consumers do not understand it. These reasons could include a current delinquent account or too many credit inquiries, but consumers have no idea what all of these mean so they fail to take the steps to help improve their score.

VantageScore surveyed 200 lenders and it revealed an increasing need for credit score education. The highlights of the survey as mentioned in the article includes the following:

  • 75% of lender participants are concerned that their clients do not understand what is written in disclosure notices.

  • 10% of lenders think their customers understand the disclosure notice “reason codes.”

  • 10% of lenders do not have a Spanish translation for their disclosure notice.

  • 38% of lenders are willing to help provide applicants with tips to help improve their credit score.

  • 33% of lender believe that a clearer and simple language will help make disclosure notices more understandable.

A separate survey, that is a joint effort of VantageScore Solutions and the Consumer Federation of America (CFA), revealed that a lot of consumers know very little about credit scores. The survey results as published on the ConsumerFed.org and it showed the following information:

  • ⅖ of consumer respondents are not aware that credit card companies and lenders refer to credit scores when it comes to making decisions about pricing and approval.

  • ⅖ believe that age and marital status influence credit scores.

  • ¼ to ⅓ of consumers do not know that they have the right to be informed of the reason for credit decisions (loan disapproval, interest rates, etc).

  • ⅓ to ⅖ of respondents are not aware that even the credit score of co-signers can be affected by student loans.

  • ¼ or more of respondents do not know how to improve or keep their credit scores from declining.

  • ⅓ of consumer respondents are misinformed about credit repair agencies.

Source: http://www.consumerfed.org/pdfs/CFA-VSS-Survey-Results.pdf

All of these statistics prove that more than ever, consumers should take time to get credit score education. You need to learn how to utilize this so it will not have any effect on any financial opportunity that comes your way in the future.

Here is a video from National Debt Relief that discusses why credit scores are important and how it can affect your plans to refinance your home.

Important credit score concepts you need to know

Now that you understand why credit score education is needed, let us discuss the basic concepts that you need to learn. If anything, this information will help you fix your credit score fast – or at least, in time for you to keep it from ruining financial opportunities that will come your way.

Here are 5 things about credit scores that you need to know about.

What is a credit score?

A credit score is a measurement of a consumer’s credit worthiness. As mentioned, it depends on your credit report. The data found on this report is a compilation of all your credit information from the various credit and financial institutions that you have transacted with. The three major credit bureaus (TransUnion, Experian and Equifax), compile this information and put it on your credit report.

A credit score range will depend on the company behind it but the average is from 300 to 850. A high credit score indicates that you are creditworthy while a low credit score would raise warning bells for lenders.

How is your score computed?

The exact formula to compute your credit score will vary. Fico Score and VantageScore, for instance, will compute your score differently. But all of them will base your score on your payment history, debt amount, credit history, new accounts, and type of accounts. These are the 5 important factors affecting your credit score.

Based on the FICO Score, the payment history affects 35% of your score. When you have a late payment, this will be affected. The next part is your debt amount – which is 30% of your score. When you have a high debt amount, this will suffer. Your credit history is 15% of your score. The older the account, the higher your score will be. The fourth involves new inquiries – which is 10% of a credit score. When you apply for a new loan and the lender looks at your credit report, that can affect your score negatively. The fifth also affects 10% of your score and it is the type of accounts that you use. The more variations, the higher your score will be.

Who looks at your score?

The majority of the people who will look at your score includes lenders and credit card companies. If you plan on transacting with any of them, you need to brush up on your credit score education. They make up the majority because you are borrowing money from them. Other viewers of your score includes employers, landlords, insurance companies and utility companies.

How to check credit scores?

If you want to take a look at your credit score, you need to get a copy of your credit report first. You can get a paid copy from one of the major credit bureaus or you can download a free copy from the Annual Credit Report website. The government mandates the three major credit bureaus to provide consumers with a free copy of their report every year. That means you get three free copies annually.

Once you have your credit report, you can proceed to search for a credit score calculator. There are many free calculators online – just make sure you will go with a site that is trustworthy and secure. Simply input the data in your credit report to get an estimate of your credit score.

What happens when you have a bad credit score?

Probably the most important question in credit score education is what will happen when you have a bad score. It really depends on who will look at your score. A bad score would mean higher interest rates from lenders and credit card companies. It will not really mean a disapproval – unless your score is really very low. For landlords, they may keep you from leasing their place or they will get a higher rental deposit from you. For employers, a bad credit score can cost you a job. For insurance companies, it can mean a higher premium payment. For utility companies, it can be the same as the landlord, you could be asked for a deposit.

Nothing is wrong with keeping your credit score high so you might as well try to take care of it. Start by learning more about it through credit score education. Added knowledge will never put you in a bad light.

Why The CFPB Has Slapped The Credit Information “Furnishers”


You probably know that somewhere filed away on giant servers are your credit reports – from the three credit reporting bureaus – Experian, Equifax and TransUnion. You may even know that they probably have different information. The reason for this is that there is no federal law dictating that lenders must furnish information to all three bureaus or for that matter that they have to report information to any of them. But did you know that your reports might contain serious errors?

A shocking 20%

In February of last year, the Federal Trade Commission released a study that was very eye opening. It had found that 20% of us have errors in at least one of our three credit reports. Even worse, about 5% of us have mistakes in our credit reports so serious they could be causing us to pay more for products such as insurance and auto loans.

Credit ReportThe best reason to check your reports regularly

What this suggests is that it’s important that you check your credit reports regularly. You can get them free once a year from each of the three credit reporting bureaus or on the website www.annualcreditreport.com. Most experts say it’s best to get your credit reports one at a time every three months. This is sort of a free way to monitor your credit year-round. If you don’t do this you’re probably putting your wallet at risk.

Not just your responsibility alone

The Federal Trade Commission has said that the accuracy of your credit reports is not your responsibility alone. The companies that supply financial data to the three credit reporting companies and that are sometimes referred to as “furnishers” are also part of the equation. The information they provide should be both thorough and accurate. One of their responsibilities is to investigate any complaint consumers make regarding potential errors on their credit reports.

Slapped by the CFPB

The recently created Consumer Financial Protection Bureau (CFPB) is not very happy with the way the furnishers and credit agencies have been handling complaints filed by consumers. The biggest complaint is that there is no official way for the credit reporting agencies to send information to the furnishers that was provided by consumers who had filed complaints. So the CFPB wants the credit reporting companies to begin forwarding the data given to them by consumers through E-Oscar, an electronic document-sharing program that is already in use. Thanks to the CFPB the system has been upgraded so that Experian. Equifax and TransUnion can now send the documents that were provided by consumers to the furnishers when they dispute an item or items on their credit reports. In fact, the CFPB has actually formalized the responsibilities and legal role of the information furniture’s when it comes to consumer complaints about their credit reports.

Investigating disputes – whenever a consumer files a dispute about an item on his or her credit report, the furnisher needs to be able to obtain information about it and must investigate the consumer’s complaint

Providing results – the CFPB has said that in addition the information furnishers must report the results of their investigations to the consumer reporting bureaus that originally filed the dispute.

Inaccuracies – finally, the information furnisher must report the results of their investigations to the credit reporting. They must also modify, permanently block or delete disputed information that is found to be inaccurate, incomplete or that cannot be verified.

The heat is on

What this amounts to is that the CFPB has put the heat on furnisher’s to increase their ability to investigate disputes from consumers, and on credit reporting firms to make sure that the furnishers get the information from consumers regarding disputes with the credit reporting agencies. And if the information furnishers don’t conform, the CFPB says it will take “supervisory and enforcement actions” against them. It’s believed that this will get the attention of the furnishers and credit reporting bureaus to do better on credit report disputes or see the wrath of the CFPB.

What to look for

When you get your free credit reports it’s important to look for the following negative items:

  • Charge-offs
  • Late payments
  • Accounts going to collection (collection accounts)
  • Tax liens
  • Bankruptcies and foreclosures
  • Judgments and lawsuits

If you find one or more of these on a credit reports and you believe the information is in error, it’s important to dispute it. The three credit reporting agencies have forms on their websites you can use to file a dispute. However, most experts say it’s best to file your dispute in the form of a letter along with the documentation you have to support your claim. While the credit reporting agencies are required to contact the company that furnished the information and ask that it be verified this has been a very haphazard process – which is, of course, why the CFPB has put the heat on both the furnishers and credit reporting agencies to do a better job of handling disputes.

man jumping with chart behindYour credit score

You should also know your credit score. It’s critical because most lenders look only at it when deciding whether or not to grant you credit. Your credit score is a three-digit number that is a sort of distillation of your credit reports. It’s created using a formula or algorithm that was created by the Fair Isaacs Corporation or what is now known simply as FICO. You can get your credit score on its website, www.myfico.com or from one of the three credit reporting bureaus or from an independent information provider such as CreditKarma.com or CreditSesame.com. If you choose to get your score from FICO you’ll either have to sign up for a free trial subscription of his Score Watch service or pay $19.95. While you can get your credit score free from one of the credit reporting agencies, be careful and don’t sign up for a service that you will have to remember to cancel. We think CreditKarma.com or CreditSesame.com might be your best options as you could get your score free from either one of them without having to sign up for anything. These two websites provide other helpful information such as the amount of money you owe on each of your credit cards, the amount of your mortgage and auto loan (if applicable) and tips for managing your debts. Finally, if you have a Discover Card you’re in for a nice surprise. Check out your next statement and it should include your FICO credit score. How cool is that?

Understanding your credit score

As you might guess, the higher your credit scores the better. Your FICO score will be somewhere between 300 and 850. There is also a score that was developed by the three credit bureaus called the AdvantageScore. It’s a bit different in that it ranges from 501 to 960. To make matters even more complicated, each scoring model uses a different algorithm and weighs your credit report differently so you might have a score of 750 from Credit Karma and a 762 from Credit Sesame.

The components of your credit score

While there are more than 100 different credit scoring models used in the industry, there is one thing that seems to be universal and that is the five components that make up a credit score. They are.

  • Your credit history
  • Your utilization of credit
  • How long you’ve had credit
  • Types of credit you’ve used
  • Recent searches for credit

Of these five components the first two – credit history and credit utilization – account for 65% of your credit score. Your credit history is just that or how well you have used credit in the past. Credit utilization is a bit trickier as it’s really your debt-to-credit ratio or how much credit you’ve used versus the total amount of credit you have available. For example, if you have $5000 in total credit limits and had charged up $2500 you would have a debt-to-credit ratio of 50%, which would be too high.

Unlike your credit history, credit utilization is something you have control over. You could improve it and get a better score. All you would have to do is pay down some of your debt and presto! Your credit score should increase.

Should An Employer Be Allowed To Check Your Credit?

Man talking and pointin to second manMaybe you didn’t know this but your employer or a prospective employer can pull your credit report. Many companies routinely do this as part of their hiring process. The think tank Demos released a report recently that 10% of unemployed Americans have been refused jobs because of information on their credit reports. Demos is a very liberal organization so its information may be a bit biased. But as the old saying goes, where there’s smoke there’s fire. Some people have probably being refused jobs because of their credit reports but 10% may be on the high side.

A bill to prevent this

Sen. Elizabeth Warren recently introduced a bill that would prevent employers from denying jobs to people based on their credit. If this bill were enacted, employers would no longer be able to require prospective employees to go through a credit check. They would also be barred from rejecting them due to any negative information in a credit report.

Why do people have bad credit?

There is no question but that bad credit can be caused by many factors. Demos thinks that the most common reason is the loss of a job and subsequently health insurance – which makes it hard for people to keep up with their bills. Others believe the number one problem is that many people are just irresponsible in the way they use credit cards.

Sen. Warren believes that credit checks are keeping many people out of the labor market who need jobs. Plus, she feels that there is no proof that a person’s credit correlates with job performance and that these checks are unfairly impacting certain groups of people including minorities, women, students and seniors. In addition, Warren also believes that, “This is another way the game is rigged against hard-working middle-class families.”

4 million victims

It’s arguable as to whether or not there is a correlation between bad credit and job performance but there is no question that credit reports can contain errors that might prevent people from getting jobs. One recent study done by the Federal Trade Commission found that 20% of credit reports had errors and 2.2% were errors so serious they could be causing people to pay more for their auto insurance, auto loans and mortgages. While 2.2% may not seem like a lot, think of it this way. There are credit files on roughly 200 million Americans. If 2.2% of these contain errors, that’s about 4 million Americans whose credit reports include serious errors.

The biggest myths of credit checks

There are a number of myths that have the do with employers and credit checks. For one thing, employers who do these checks rarely pull the reports of all applicants. They get them for a specific reason such as the job is in finance or at an executive level where the person would have profit and loss responsibility.

A second myth is that employers and lenders look at credit reports the same way. The fact here is that lenders put a heavy emphasis on credit reports while employers don’t emphasize them as much. Evaluating a prospective employee is a more holistic thing where skills, job experience and job history are more important. However, your credit report could be a showstopper if it causes your prospective employer to doubt your ability to handle and manage corporate assets such as debt and collections or litigation.

It’s also a myth that you’ll never be hired if you have poor credit. There are several reasons for this. First, many employers don’t know how to read a credit report or even how to apply the information they see. And second, most employers know that many successful people have had financial problems. And it’s likely that one blemish won’t disqualify you. This is because most employers don’t expect you to be 100% perfect.

Myth number four is that all negative information is bad information. The truth here is that some is more disturbing than others. A potential lender might balk if you had skipped a card payment but employers are likely to ignore it unless you were also sued for a debt that resulted in a monetary judgment.

The final myth is that companies can check your credit behind your back. This is totally untrue. You’ll know if they’re going to check your credit because you must give your permission.

What to do about negative information

If you know that there is derogatory information in your credit report such as late payments, a judgment, accounts that went to collection or a default, it’s best to get the issues out in the open and discuss them with your potential employer. This gives you the opportunity to explain what happened. The company is going to learn about it anyway and it’s better if it finds out from you. If you don’t bring up those negative items and discuss them, your prospective employer may wonder why and if there might be other information you’re trying to hide.

Sample TransUnion Credit ReportGet your credit report first

You should get your credit reports on a regular basis anyway. But it’s most important to get them when you’re job hunting or applying for a mortgage, an auto loan or some other major item. There are three credit-reporting agencies and each has a file on you. To make matters worse, the information in these three files can be different. There’s no law that a lender must provide information to all three credit bureaus or even to just one. You really need to get all three of your reports. You can get them free once a year from the three credit reporting bureaus – Experian, Equifax and TransUnion – or at the site www.annualcreditreport.com.

What to look for

When you get your reports you need to look for the following items.

  • Accounts that were sent to collection
  • Tax liens
  • Judgments and lawsuits
  • Charge offs
  • Bankruptcy and foreclosure
  • Defaults

If you find one of these in a credit report, you can bet it’s having a negative effect on your credit score and could be a problem with a prospective employer.

If you do find an error

Of course, there’s always the possibility that the item is there due to an error. The credit bureaus handle thousands of items a week and mistakes can be made. As you read in a previous paragraph, errors have been found in 20% of all credit reports. If you find one, you need to dispute it by writing a letter to the appropriate credit bureau along with whatever documentation you have that proves your case. Once the bureau receives your letter it is required to contact the company or organization that supplied the information and ask it to verify the item. If the organization cannot verify it or doesn’t respond within 30 days, the credit bureau is required by law to remove the item from your credit file. As you might guess, this could result in a nice boost to your credit score.

It’s easier but still not easy

There has been pressure on the credit reporting bureaus to make their reports easier to understand. And they have gotten better. But they’re still not as reader-friendly as, say, Sports Illustrated or Cosmopolitan. If you find you have a problem understanding your reports, you might ask a friend or relative for help. You could go to one of the credit counseling agencies mentioned previously and have a counselor explain things to you or you could watch this video to learn more about understanding credit reports.

4 Reasons Why Your Credit Score Needs Your Attention

past due text beside a man with a dollar sign covering his faceHave you ever wondered why credit scores have become king in the financial world? This is a numerical figure that displays how a consumer behaves when it comes to credit. It shows how responsible you are in paying your dues, how many you have borrowed and other important details about your reaction to debt.

It was not always so important until a decade or so ago. Now, everyone is so concerned about keeping their credit score up. It rules a lot of their financial decisions and it is all for a good reason.

What is the importance of a high credit ranking?

If you want to improve your finances, you need to start paying attention to everything that involves your money. That includes your credit score. There are 4 important reasons why this is so.

  • Encourages financial responsibility. To be financially responsible means you must be in control of your money. You cannot be deemed responsible if you do not know what is happening  your money. This is why paying attention to your credit score is very important. By monitoring your score you will be forced to look at your money and credit obligations regularly. That will help you practice the habits that will make you more responsible with your finances.

  • Allows access to financial opportunities. By keeping your score high, you will be getting a lot of financial opportunities. The most common is getting a low interest on your loan. A high credit score shows lenders that you are a low risk borrower and that prompts them to lower your interest rate. Not only that, potential employers also look at your credit report. It could mean losing your dream job if you do not take care of your credit ranking.

  • Warns you of identity theft. A lot of people ignore credit monitoring for the simple reason that they know they can control their credit obligations. Being responsible with credit is great but you have to look at your credit report every now and then to check for identity theft. Some people fail to notice that someone else already borrowed under their name and did not pay it. They means your credit history is tarnished and if you do not look at your score, that will keep you from acting on the theft immediately.

  • Keeps you from a financial crisis. By keeping an eye on your credit score, you will realize just when your debts are already getting out of hand. When you debts overtake your ability to pay for it, that will lead to some serious problems in the future. So by looking at your credit report regularly, you can gauge how much you owe and how much you can afford to borrow. This will keep your finances from potential ruin.

How is your credit score computed?

To monitor your credit score means you should understand how it is computed in the first place. You don’t have to do the actual computation yourself. In truth, the actual formula is unknown to the public. But you can use the online credit score estimators to help you determine your current score. Apart from the free calculator from the MyFICO website, you can also use the ones from Freecreditscore.com and Creditcards.com.

But to help you understand things further, there are 5 distinct categories that affect the figure that comes out as your credit rating.

  • Payment history. This is 35% of your overall credit score. This basically shows your payment behavior. If you had been late on payments, this is what will affect your score. By consistently paying your dues on time, you can keep your credit score up.

  • Total debt amount. The higher your debt is, the lower your score will be. This affects 30% of your score. So before you take in new credit or charge a purchase with your card, you need to consider how much debt you already owe. Not only will you be protecting yourself from the possibility of being unable to pay for your dues, you will also keep your score high. Pay off your current debts before you borrow more money.

  • Credit history. 15% of your credit score is affected by your credit history. Basically, your old accounts will help keep your score high. So try to keep your old accounts so it can contribute to at least 15% in your credit report. But you don’t have to just keep them open, they have to be active. That means you have to use it and keep on making payments on it.

  • Type of credits. This is 10% of your overall credit score. It may seem like a small part but you should not disregard it nevertheless. This part of your score involves the type of debts that you owe. Take note that 3 credit card debts are only counted as one. You need to have revolving and installment debts (credit cards and personal loans, respectively).

  • New credit. When you apply for a loan, the lender will pull out a copy of your credit report. This will be noted on your report and that can pull your score down – at least the 10% of your score.

These are all computed to come up with your credit score. So if you want to improve it you should pay attention to these 5 categories – especially those that have a bigger effect on your score.

To know more about credit scores, here is a video from one of the 3 major credit bureaus, TransUnion.

The Truth About Those Free Credit Reports

Credit ReportI once had a friend that had been an advertising agency copywriter. He once told me, “You can’t beat free.” And it’s true. There’s just no word in advertising more powerful than free. It’s nice to read that something’s 20% off, 30% off or even 40% off. But none of that beats free. You not only save money when you get something free, it just leaves you feeling good – almost as if you had gotten away with something. Unfortunately, in some cases free isn’t entirely free. As an example of this, I was about to order something from Amazon the other day because I would get free shipping. That is, it was free until I read the fine print and learned that my order had to be for $100 or more.

Those free credit reports

Another example of where free isn’t really free is in the case of the free credit reports you see advertised. Hardly a day goes by that I don’t see an offer for a free credit report. You’ve probably seen them yourself on TV or received them via email. But in many cases, these “free” credit reports are not exactly free. This is because you’re often required to do something in order to get your report. The most popular of these is credit monitoring. As an example of this, the website www.annualcreditreport.com offers a free credit report but if you’re not careful, you’ll see your credit card hit with a $29.95 charge the next month for credit monitoring. You might remember seeing commercials for www.freecreditreport.com with that catchy jingle. The way it promoted a free credit report was so misleading that the company was ultimately sued for $1.2 million by the FTC (Federal Trade Commission.)

The credit-reporting bureaus

Two of the three credit reporting bureaus – Experian and Equifax – also offer “free” credit reports. Experian will provide you with your credit report for just one dollar but you will be required to sign up for a free seven-day trial of its Credit Tracker service. The second of the credit reporting agencies, Equifax also offers a “free” credit report. But when you click on the appropriate button, you end up on the site mentioned above, annualcreditreport.com. The third of these bureaus, TransUnion, doesn’t offer a free credit report on its homepage but promotes a free credit score instead.

The other websites

There are also a variety of websites that promise free credit reports but again have strings attached. You need to be wary of these because if you choose the wrong one you could end up with a surprise charge on your credit card for some service you didn’t really want and would likely have a very hard time canceling.

Some good alternatives

Fortunately, there are websites where you could get your credit report free that are honest and provide helpful information. One that we like is CreditKarma.com. It will provide you with your credit report free, along with the ability to stay on top of all of your accounts in one place along with free credit monitoring. However, the free credit score you get won’t be your true FICO score. It will be your Experian score, which should be close enough to your FICO score for you to know whether you have good or bad credit. We also like www.CreditSesame.com for the same reasons.

The one true place to get your credit reports free creditbad and good credit signs

Some years ago our Congress passed the Fair Credit Reporting Act (FCRA). This act mandated among other things that the three credit reporting bureaus must provide you with your credit report free once a year. You could get your report by contacting each of the agencies individually or via the website www.annualcreditreport.com (not to be confused with the other site that has a similar name). This site not only provides your credit reports free but also gives you the option of obtaining all of then simultaneously or one at a time. Many people choose to get one report every four months as a way for do-it-yourself credit monitoring.

Look for these items

When you get your credit reports, there are several items to look for that could be severely damaging your credit score. These include:

  • Late payments
  • Accounts sent to collection
  • Defaults
  • Liens
  • Judgments
  • Bankruptcies
  • Foreclosures
  • Charge-offs

If you do find any of these items on one or more of your credit reports, make sure they are really legitimate. The three credit bureaus process literally thousands of pieces of information a week and they do make mistakes. If you find an error on one of your reports, it’s important to dispute it. All three of the credit-reporting agencies have online forms where you can file a dispute but most experts say it’s better to do it via letter. You will need to attach any documentation you have supporting your claim. It’s also a good idea to send a copy of your letter and documentation to the organization that provided the erroneous information. Once the credit bureau receives your letter, it must contact the organization that provided the information and ask for it to be validated. If that company cannot validate the information or doesn’t respond within 30 days, the credit bureau must remove that information from your credit file.

If you need to dispute an item, here’s a video with helpful information about the letter you would need to write to the appropriate credit bureau.

How To Get Negative Items Removed From Your Credit Report

Credit ReportThere are seven negative items that will have a very damaging effect on your credit score. They are:

  • Debt collections
  • Late payments
  • Foreclosures
  • A bankruptcy
  • A tax lien
  • Lawsuits or judgments
  • Charge-offs

Reviewing your credit report

The only way you can know if you have any of these negative items in your credit reports is to get and review them. The federal government has mandated that the three credit reporting bureaus – Experian, Equifax and TransUnion – must provide you with your credit report free once a year. You can get your reports by contacting each of these bureaus individually or you could get them simultaneously at the site www.annualcreditreport.com. Whichever you choose it’s important that you get your credit reports and that you review them carefully, looking for the negative items listed above.

What you can and can’t get removed

Of the seven items listed here, there are only four you can do something about –IRS tax liens, debt collections, late payments and charge-offs. Despite what some people might want you to believe, there is nothing much you can do about foreclosures, a bankruptcy, a judgment or lawsuit except wait seven years for them to fall out of your credit report

Debt collections

Debt collections is a shorthand way of saying that you had an account that went to a debt collector. Lenders often bundle up debts they no longer believe they can collect and sell them to debt collectors – usually for pennies on the dollar. You’ll know you’ve had a debt collection when you receive a phone call from a debt collector. We’ll assume for the sake of this example that the debt is legitimate and that you must pay it. Since the debt collection agency probably paid very little for that debt, there is room for negotiation. As part of the negotiation you should insist that when you do pay, the collection agency removes the item from your credit reports. Be sure to get this in writing as well as the amount you have agreed to pay.

IRS tax liens

There is a simple way to get an IRS tax lien removed from your credit report. Just pay it off. When you do, the government will remove this from your credit report within 30 days.

Charge-offs

This is basically an accounting thing. If after six months a lender believes that it won’t be able to collect the debt from you, it will bookkeep it as a charge-off. However, this does not cancel your debt. If you pay the debt in full, your lender will probably report it to the three credit bureaus as “paid charge off.” This is certainly better than having the debt listed as a charge-off but not as good as having it removed from your credit report. There are three ways to get a charge off removed and this brief video that explains them.

Late payments

There are three ways to get a late payment removed from your credit report. And it’s a very good idea to do this. Some financial experts believe that a late payment can drop your credit report by as much as 180 points. The first way to do this is to ask for a “goodwill adjustment.” If you have a good credit history with the lender, it may grant you one of these adjustments. What you would need to do is write a letter to the creditor explaining why you were late and asking that it “forgive” your late payment.

Second, you could ask that the item be removed and that in return you will sign up for automatic payments. This can be good for both you and your lender. You will have the late payment removed from your credit report and your lender will know it will be receiving all your payments on time in the future.

Finally, you could dispute the late payment. There are instances where the creditor may have a difficult time verifying the details of your debt. If you find inaccuracies such as the amount owed, the date of the debt, etc., you could dispute the item as inaccurate. If your lender is unable to completely verify the debt, the credit bureau will remove it from your credit report. You can file a dispute with the appropriate credit bureau via letter but will need to have some supporting documentation to prove your case.

The five components of your credit scoreMan climbing credi score numbers

If you are not familiar with how your credit score is computed, it has five components.

  • Payment history
  • Amount of credit used
  • Types of credit
  • Credit history
  • Credit requests

Two of these components – your payment history and the amount of credit you have used account for 65% of your credit score. You can see from this how important it is that you use your credit wisely. The best ways to keep your credit score up above the magic 700 point level are to make all of your payments on time, pay your balances in full every month and keep the amount of credit you’ve used low versus the amount you have available. This is called your debt-to-credit ratio and unlike your credit score, lower is better. As an example of this, if you have total credit limit of $10,000 and have charged only $2000, you have a debt-to-credit ratio of 20%, which would be considered very good. Conversely, if you had used up $6000 of that $10,000, your debt-to-credit ratio would be 60% and this would be bad.

Rebuild Your Credit Using These 9 Tips

woman making financial decisionsOkay, you’ve really hashed up your credit. You now have a credit score so low it’s barely above room temperature. So what can you do to rebuild your credit? Here are 9 tips that should help

1. Get out your calendar

There is a federal act titled the Fair Credit Reporting Act (FCRA) that establishes for how long negative information stays in your credit report. Get out your calendar and write down these dates so you will know what to expect.

  • • Late payments: 7 years from the date the payment was late
  • • Collection accounts: 7.5 years from the date of delinquency on the original debt (leading up to collection)
  • • Charge-offs: 7 years from the date charged off
  • • Judgments: 7 years from the date entered by the court if paid, probably longer if you did not pay it
  • • Repossession: 7 years from the date the repossession happened
  • • Tax liens: 7 years after they are satisfied or paid off
  • • Bankruptcy: 10 years from the date you filed for a chapter 7 bankruptcy. Seven years from the date of filing in the case of a chapter 13 bankruptcyx)

2. Check out your credit report and credit score

You may not be aware of this but debts can be sold and resold over and over. You need to review your credit reports to make sure that the same debt is not appearing multiple times because it’s been reported by several different collection agencies. There are three credit reporting bureaus (Experian, Equifax and TransUnion) and you’ll need to get your reports from all of them. You could contact each of them separately or go to the website www.annualcreditreport.com and get all three simultaneously. They are free once a year. If you need to review them more often than this you will need to pay for them.

You can get your credit score free from the site www.CreditKarma.com. It won’t be your real FICO score but should be close enough for you to see how credit worthy you are. If you want your true FICO score you will need to go to the website www.Myfico.com and either sign up for a free trial of its Score Watch service or pay $19.95. This may be worth the time and investment because the overwhelming majority of lenders use this score to rate you and not the CreditKarma score that comes from Experian.

3. Don’t be scared of bargaining with debt collectors

If you’re being hounded by a debt collector, don’t be afraid of negotiating with him. Debt collectionagencies usually buy debts for literally pennies on the dollar. This gives the collector of a lot of leeway in haggling with you. Your original debt might have been for $950 but with a little bargaining you might get it down to $300 or less. There are also some other things you should know about dealing with debt collectors and here’s a video that explains them.

4. Eliminate that tax lien

If you find a tax lien in your credit report, you can probably get it eliminated. All you need to do is contact the IRS and set up a payment plan.

5. Get new credit

Don’t be afraid to apply for new credit. While you don’t want to get into serious debt again, you need to rebuild your credit score and you can’t do that without credit. If you can show recent and positive credit information, this can make a big difference in your credit score.

6. Get a secured card

Secured cards are debit cards where you are required to deposit a certain amount of money to “secure” it. This is usually either $300 or $500. You can then charge against the card until you exhaust your balance. At that time you will need to load more money onto the card. How you use a secured card will be reported to the credit bureaus. If you use it wisely and sensibly, this will have a positive impact on your credit score.

7. Don’t max it out

Experts say that if it’s at all possible, don’t use much more than 10% or 25% of the balance on that secured card. If you had, say, an initial $500 balance on the card but had used up $400 of it, it would look as if you had maxed it out.

8. Learn how to dispute mistakes

When you analyze your credit reports it’s possible you will find mistakes that are having a negative impact on your credit score. If this is the case, you need to send the credit reporting bureau a letter disputing the item. While the three credit reporting bureaus have forms available online for disputing items, it’s much better to send the relevant bureau a letter. The three credit reporting bureaus don’t spread information among themselves so you will need to notify the appropriate one about the mistake and ask that it be removed from your credit report. You will need to have documentation supporting the dispute. If you do, it’s likely that the credit bureau will remove it from your credit report.

9. Be a lot more careful this time aroundHow To Invest To Grow Your Personal Wealth

When you are able to establish new credit, be sure to make all of your payments on time. Just one late payment can cause your credit score to drop dramatically. The best way to make sure you are always on time is to set up your payments on auto pay or establish automatic payment reminders by email or on your computer’s calendar.