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Six Items To Watch For On Your Credit Reports

Woman holding glasses and reviewing credit card statementYou do know that you have more than one credit report, don’t you? If you didn’t know this, you actually have three. This is because there are three credit reporting bureaus –Experian, Equifax and TransUnion. While all three tend to get information from the same sources, they each have their own way of reporting the information and even the way they calculate your credit score. Despite this, there are items that could appear on any or all of your credit reports that you need to watch out for.

The two kinds of inquiries

About 10% of your credit score is based on the number of times that people have inquired about your credit report. There are two types of these inquiries – hard and soft. Soft inquiries are those where credit providers have inquired about your credit in order to make you a “pre-approved” offer. As a rule, these don’t count much against your credit score. Hard inquiries or those where you applied for new credit are items to watch out for. The reason for this is because every time a credit bureau sees a hard inquiry, your credit score will likely take a small hit.

Accounts you closed or never opened

You should watch out for credit accounts that you never opened or that you closed. If a sufficient amount of time has gone by since you closed an account, this should show up on your credit report. A quick glance at your report should tell you that the account or accounts have been closed and that the dates are correct. If you find an account you had closed was still reported as open, you will need to contact your lender to find out why.

Bankruptcies, liens and judgments

You should certainly know if you’ve had a bankruptcy, a judgment or a lien filed against you. However, in this day and age of identity theft you could be stuck if someone else is using your identity or if an unscrupulous debt collector has gotten a judgment against you without having properly notified you. You need to scan your report looking for the “public records” section. If you find information about a judgment, lien or bankruptcy you know wasn’t yours, you’ll have to take immediate action to get it deleted from your credit file.

Collections

Have you had an account go into collection or that has been written off or charged off? If so, you probably know about it. But there are cases where these have been erroneously reported. If you find such an item, you need to immediately dispute it and have it removed from your credit report. If it’s a very old debt, you should check the statute of limitations in your state as it may have expired so that no collection agency could sue you over it.

A high debt debt-to-credit ratio

Another important factor in your credit score is your debt-to-credit ratio. This is a percentage that reflects the difference between the total amount of credit you have available and the total amount you’ve used. Suppose you have $5000 in credit available and have used $1000 of it. In this case, you would have a 20% debt-to-credit ratio, which is very acceptable. On the other hand, if your credit ratio was higher than 35%, this could be a problem.

A second formula

A second formula used in this scoring will look at your debt-to-credit limit another way. It will calculate the total of all your debts on revolving accounts versus the total amount of credit available on the same accounts. This means that if you were to have four cards that each had a $5000 line of credit (a total of $20,000 in credit) and a $2000 balance on two of them but no balance on the others, your ratio would be 10%. Most financial experts say that the ideal debt-to-credit ratio is 10% or less but you would certainly want to keep your ratio to less than 40%.

Credit Report Problems Are Even Worse Than We Thought

Woman stressing over debtsWe reported not long ago that the FTC (Federal Trade Commission) had found errors in 20% of our credit reports. And these were errors that could have actually lowered our credit scores. Well, according to the FTC, it’s actually worse than 20%.

New FTC numbers

The FTC now says that 26% of us have material errors on at least one of our three credit reports. Even worse, 5% of all consumers have errors that when corrected, would place them in a different credit score range so they would have lower interest rates on their mortgages, auto loans and credit cards.

Check your credit reports regularly

What this underscores is the need to check your three credit reports regularly. You can get them individually from the three credit reporting bureaus, Experian, Equifax and TransUnion Or you can give them simultaneously and free at the website www.annualcreditreport.com. However, many consumers choose to get their reports individually from the three credit bureaus at four-month intervals so that they can, in effect, monitor their credit reports year around.

Get any errors reversed

If you do find an error in one of your credit reports, you can get it reversed. In fact, according to the FTC, 80% of those who filed disputes over errors saw their credit reports changed.

Only 20%

This FTC study also found that only 20% of us check our credit reports every year. This means that 80% of us are failing to check them regularly. If you fall into the 80%, you may have an error in one of your credit reports that’s costing you money – in terms of the higher interest you may be paying on your credit cards, personal loans, auto loans or even your auto insurance.

How to dispute an error

Let’s say that you review your credit report from one of the credit bureaus and find that a lender you don’t even recognize reported that you had defaulted on a loan. The Fair Credit Reporting Act (FCRA) mandates that you can dispute this by writing a letter to the appropriate bureau contesting the information. The credit-reporting bureau then has 30 days to contact the company that provided the information and ask for validation. In the event the company can’t validate the information it reported or doesn’t respond to the credit bureau, that information must be removed from your record.

The effect of erroneous information

It’s important to get errors on a credit report corrected because it can have a very adverse effect on your credit score. Lenders generally look at what are called credit score ranges. For example, credit scores between 700 and 850 are considered to be very good or excellent. On the other hand, credit scores between 580 and 619 are in the low credit score range. And anything below 500 would be either poor or bad. This means if your score was sitting at 621 (average or okay) and an error in one of your credit reports dropped it to 618, you would now be seen as having a poor credit score, which could cost you money in higher interest rates.

A bankruptcy is the worst

If you’re having a problem with debt, there are a number of ways to handle it. Some will have an effect on your credit score and others won’t. As an example of this, if you were to go through consumer credit counseling it would have no effect on your credit score. But a bankruptcy will lower your credit score by as much as 200 points. If you have a low credit score to begin with, this could drop you into the category of bad credit score and make it very difficult for you to get any new credit. In fact, most experts say that this would stop you from getting new credit for two to three years.

“How Can I get My Credit Report Repaired?”

Payment overdueI saw this question posed on a forum by a woman who had a bad credit report and wanted to know if she should hire someone to repair it or if she should just contact her creditors herself. She also wanted to know how long she should wait after her credit report had been repaired before letting someone pull her report to see if she could “qualify for a house.”

Two fundamental errors

If you read this last paragraph carefully, you should have spotted two fundamental errors. First, despite what some Internet advertisers might want you to believe, there is no way to get credit repaired (more about this later). And second, since her credit report isn’t going to get repaired anytime soon, there is probably no way she would “qualify for a house”, i.e., get a mortgage.

Ethical credit repair

Bad credit reports can’t be repaired period. If there is negative information in your credit report that’s accurate, it cannot be removed and will stay there for seven years. Read the fine print in the ads for ethical credit repair companies and you’ll probably see that this is true. For example, if your search Google on the term “credit repair,” you’ll see a link to the website of Veracity Credit Consultants. Its page says“ Veracity works to remove errors, delete inaccurate negatives, and highlight good accounts. Notice how it says nothing about “repairing” or “deleting” accurate information.

What Veracity and other honest companies can do

As Veracity states, it and the other companies and attorneys you’ll find by searching on “credit repair” can get erroneous information removed from your report. If this information has negatively impacted your credit score, getting rid of it would definitely help both your score and your credit report. But again, remember there is nothing that can be done about accurate information.

Easy to get in, tough to get out of

The biggest problem with credit for many people is that debt is so much easier to get into than get out of. In fact, you can trash your credit in as few as three months by skipping payments and or by failing to make even your minimum monthly payments. Every expert I have read on personal finances has said that it’s critical to pay off your balances each month. Once you start carrying balances forward by making just the minimum monthly payments, you’re on a slippery slope. And if you start skipping those minimum payments, it’s certain that you’re on the way to big trouble.

Contacting her creditors

One thing this woman suggested that would make good sense is for her to contact her creditors as they might be willing to negotiate. This is especially true of credit card companies. They are staffed by hundreds of customer service agents who have been trained to be sensitive to their customers’ needs and to work with them. If this woman could show how she was in a serious financial bind, her credit card companies might be willing to give her a sort of recess of no payments for two or three months to work on her balances or they might suspend her interest charges for several months.

Debt settlement

It might also be possible for this woman to negotiate settlements with her creditors for 50% of what she owes or even less. This could work if she has not made even her minimum monthly payments for six months or longer. However, she would have to be a very good negotiator and would have to have the cash available to pay the settlements.

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