WHAT IS A CREDIT SCORE AND HOW IS IT CALCULATED?
A credit score is a number that reflects the information in your credit report. The score summarizes your credit history and helps lenders predict how likely it is that you will repay a loan and make payments when they are due. Lenders may use credit scores in deciding whether to grant you credit, what terms you are offered, or the rate you will pay on a loan.
INFORMATION USED TO CALCULATE YOUR CREDIT SCORE CAN INCLUDE:
-The number and type of accounts you have (credit cards, auto loans, mortgages, etc.);
-Whether you pay your bills on time;
-How much of your available credit you are currently using;
-Whether you have any collection actions against you;
-The amount of your outstanding debt; and
-The age of your accounts.
WHAT CAN CAUSE MY CREDIT SCORE TO CHANGE?
Because your credit score reflects the information in your credit report, changes to your credit report may cause your credit score to change. For instance, if you pay your bills late or incur more debt, your credit score may go down. However, if you pay down an outstanding balance on a credit card or mortgage or correct an error in your credit report, your credit score may go up.
HOW CAN I GET MY CREDIT SCORE?
In some cases, a lender may tell you your credit score for free when you apply for credit. For example, if you apply for a mortgage, you will receive the credit score or scores that were used to determine whether the lender would extend credit to you and on what terms. You may also receive a free credit score or scores from lenders when you apply for other types of credit, such as an automobile loan or a credit card.
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Applying Hurt My Score!
DOES APPLYING FOR MULTIPLE NEW CREDIT ACCOUNTS HURT YOUR CREDIT SCORE MORE THAN APPLYING FOR JUST A SINGLE NEW ACCOUNT?
Yes, applying for many new accounts can often damage your credit score more than applying for a single new account. There is no set number that is too many, but the fewer you apply for the better it is on your credit score.
Applying for one new credit card may have a small impact to your score, but applying for several can have a much more serious impact. It’s best to research the features and terms of each card and then only apply for the credit card that offers the features you want.
WILL ACCOUNTS THAT ARE NOT ON MY CREDIT REPORT AFFECT MY SCORE?
Your credit score presents a fairly accurate picture of your credit history, but not every account is recorded. Certain things, like your good history of rental and utilities payments are not listed on your credit report. Positive information from your landlord, cable, and cell phone providers is not reported to the credit bureaus.
WILL MY CREDIT SCORES CHANGE MUCH OVER TIME?
No, in general credit scores do not change that much over time.
There are a variety of factors that impact changes to your credit score over time, such as:
-Your current credit profile – your history of managing your credit will affect how a particular action impacts your score. Something like opening a new credit account will have a much greater impact on someone with a limited credit history than on someone with a more established credit history.
-The change being reported – the “degree” of change being reported will have an impact. Someone who pays their bills on time and continues to do so will not see much change to their report over time. However, if this same person files for bankruptcy there would be a serious impact to their credit score.
- How quickly information is updated – there can be a lag between when you perform an action and when it is reported by the creditor to the credit bureau. It’s only after the credit bureau has received the updated information that it will have an effect on your FICO score.
Closing a Credit Card
I AM THINKING OF CLOSING ONE OF MY CREDIT CARDS, WILL THAT HELP MY SCORE?
No, we never recommend closing a credit card to help your credit score. It may sound like a good idea–cleaning up your credit profile by getting rid of old or unused credit cards—however, credit scores consider something called a “credit utilization ratio”. This ratio looks at your total used credit compared to your total available credit. The higher this ratio is, the more negative impact it can have on your credit score. By closing an old or unused card you are essentially removing some of your available credit and thus raising your credit utilization ratio.
WHAT ARE THE DIFFERENT CATEGORIES OF LATE PAYMENTS AND HOW DOES YOUR CREDIT SCORE CONSIDER LATE PAYMENTS?
Your credit score considers late payment using these general criteria; how
recent the late payments are, how
severe the late payments are, and how
frequently the late payments occur. So this means that a recent late payment could be more damaging to your credit score than a number of late payments that happened a long time ago.
You may have noticed on your credit report that late payments are detailed as to how long the payment was late. Normally, creditors report late payments in one of these categories: 30-days late, 60-days late, 90-days late, 120-days late, 150-days late, or charge off Of course a 90-day late is worse than a 30-day late. If you continue not to pay your dept and your creditor either charges it off or sends it to a collection agency, it is considered a significant event with regard to your score and will likely have a severe negative impact.
It’s important to always stay on time with your payments; your history of payments is one of the largest factors in your credit score.. Before being late for any payment, we recommend that you reach out to your creditor; the creditor may be willing to work something out with you that you both can live with. Again, late payments hurt, but you can get current with them by paying them off. For a free consultation
HOW DO PUBLIC RECORDS AND JUDGMENTS AFFECT MY CREDIT SCORE?
Some public records can have an adverse affect on your credit score, so you need to carefully consider whether it is worth going to small claims court versus reaching a settlement with the other party outside of court.
PUBLIC RECORDS AND YOUR CREDIT SCORE
Public records are legal documents created and maintained by Federal and local governments, which are usually accessible to the public. Some public records, such as divorces, are not considered by your credit score, but adverse public records, which include bankruptcies, judgments and tax liens, are considered by the credit score. Your score can be affected by the presence of an adverse public record, whether it’s paid or not.
DEALING WITH A JUDGMENT ON YOUR CREDIT REPORT
Judgments will almost always have a negative affect, to your credit scores. Before letting a bill or credit obligation get to the courthouse, see if there is an alternative that might work. Reach out to the person or company that you owe money to and see if some sort of arrangement can be worked out. If you are dealing with a collection agency or other company, they may be willing to work out a settlement with you that is equitable as it’s almost always more efficient for them to work with you directly than through the courts.
Foreclosure - Short Sale
WHAT IS THE DIFFERENCE BETWEEN A FORECLOSURE AND A SHORT SALE FOR MY CREDIT SCORES?
You may have heard of alternatives to foreclosure, such as short sales, and deeds-in-lieu of foreclosure. All of them are “not paid as agreed” accounts and will impact your scores the same. This is not to say that these are not better options for you from a financial point of view.
Bankruptcy may have a greater impact to your credit score. A foreclosure is a single account that you default on. However, declaring bankruptcy may affect multiple accounts and has an opportunity to have a greater negative impact on your credit score.
HOW WILL A BANKRUPTCY MARK EFFECT MY SCORE?
A bankruptcy is always a serious negative mark on a credit score. The impact will depend on other factors in your credit report. Someone with a good credit profile and a high credit score would see a huge drop in their score. Someone who already had many negative marks on their report might only see a small drop in their score.
Good Credit - Still Denied
I HAVE GOOD CREDIT, BUT I AM STILL GETTING DENIED
The simplest answer is Lenders have less money to loan out right now than they have had in the past. Because of this they must make fewer loans. In turn, they choose to lend to borrowers who show the best chance of repaying. This is one reason that it’s more important than ever before to improve your credit score.
HOW TO BUILD CREDIT HISTORY?
For people who are new to credit and trying to build a history there are many different options. It’s important to pay close attention because it can be easy to lose your way.
- Apply for and open a new credit card. You may receive good terms or you may have a high APR, because you do not have a credit history. It’s possible that it maybe difficult to find a credit card to approve you due to your lack of history. If this is your situation you can look into a secured credit card.
- Open a secured credit card. This can help you establish your credit history if you are unable to go the tradition credit card route. This type of card requires you to deposit money with the credit card company. After that you can make charges on the card up to the amount you have deposited. This is often a good option because secured credit cards do not often turn applicants down. Pay attention to terms and fees as they may be high due to your lack of history.
No matter if you decide on a traditional credit card or a secured credit card, it’s integral that you keep low balances, make a payment each month, and never miss a payment. You will be on your way to a great credit history.
WILL SPENDING LESS MONEY AND PUTTING MORE INTO SAVINGS IMPROVE MY CREDIT SCORE?
Even though putting money aside in savings is a great idea, it won’t necessary have any impact on your credit score. Credit scores don’t recognize the amount of disposable cash you have on hand. The amount you have in savings doesn’t have an impact on your score.
Spending less can have an effect on your credit score, but only in terms of spending less on credit cards will it have a positive impact on your credit score. If you spend less on your credit cards then your balances will start to lower. This will effect your credit score positively.
Improve Your Score
IS IT POSSIBLE TO HAVE A GOOD CREDIT SCORE WITH ONLY ONE CHARGE ACCOUNT?
The short answer is yes, anyone can build a good credit rating by using a charge account. First let’s talk about the definition of credit cards. Many people are confused about the differences between a actual credit card and a Bank Card, or commonly known as a Debit Card.
In general, a credit card lets you make purchases then you will be billed later. Most credit card accounts allow you to carry a balance from one billing cycle to the next, which allows you to pay off the balance over time. Although, you will usually have to pay interest on that balance.
A debit card is quite the opposite of a credit card. Being the fact that a credit card allows you to make a purchase, and then pay it off over time, as mentioned above. A debit card is simply a way to pay for purchase using funds in a bank account that is associated with that debit card. A common misconception about debt cards is that they report history to the credit bureaus, and thus help your credit scores. Unfortunately this is not true, and in most cases debit card activity is not reported to the credit bureaus.
SO WHAT DOES THIS MEAN FOR YOUR CREDIT SCORE?
There are many ways to build your credit score over time. Credit cards have a strong influence on the credit score calculation. Credit cards can be just as effective as any other credit product in helping consumers establish a credit history.
Whether you have a credit card or any other credit account, the most important factor in building or improving your credit score is using credit responsibly. That means paying your bills on time and using your credit only when needed. If you can do those things consistently, you should be well on your way toward maintaining a good score.
CREDIT PROBLEMS – HOW THEY AFFECT YOUR CREDIT SCORES
You may run into financial difficulties that impact your credit score. Some scenarios may cost you several points, whereas others may have a minimal impact on your credit scores. Common question, “Why does one negative weigh heavier on my scores than another?” Great question, and the answer is the scoring algorithms or commonly known as scoring models. Each model will treat a negative item differently, so the impact on your credit score may vary from one negative item to the next.
There are many factors that impact your credit score. Some may be more damaging that others, and some may not weigh on your scores as much as you may think.
High scores can fall farther. Notice that Vanessa would lose more points for each negative scenario than would Josh, even though her credit score was 100 points higher than Josh. That’s because Josh’s lower score of 680 already reflects his riskier past behavior. So the addition of one more indicator of increased risk on his credit report is not quite as significant to his score as it is for.
TRYING TO FIX BAD CREDIT?
HOW LONG DOES NEGATIVE INFORMATION, SUCH AS LATE PAYMENTS, STAY ON MY CREDIT REPORT?
Generally, negative credit information stays on your credit report for seven years. If you have filed for personal bankruptcy, that fact stays on your report for ten years. Information about a lawsuit or an unpaid judgment against you can be reported for seven years or until the statute of limitations runs out, whichever is longer.
What can I do if I am denied credit, insurance, or employment because of something in my credit report? What can I do if I receive less favorable credit terms than other consumers because of something in my credit report?
If you are denied credit, insurance, or employment–or some other adverse action is taken against you, such as lowering your credit limit on credit card account–because of information in your credit report, the lender, insurance company, or employer must notify you and provide you with the name, address, and phone number of the credit bureau that provided the credit report used to make the decision. You can get a free credit report from this credit bureau if you request it within sixty days after receiving the notice. This free report is in addition to your annual free report.
In addition, lenders may use a credit report to set the terms of credit they offer you. If a lender offers you terms less favorable (for example, a higher rate) than the terms offered to consumers with better credit histories based on the information in your credit report, the lender may give you a notice with information about the credit bureau that provided the credit report used to make the decision. Again, you can get a free credit report (in addition to your annual free report) from this credit bureau if you request it within sixty days after receiving the notice.
Your Credit Report
WHAT IS A CREDIT REPORT?
A CREDIT REPORT IS A RECORD OF YOUR CREDIT HISTORY THAT INCLUDES INFORMATION ABOUT:
Your identity. Your name, address, full or partial Social Security number, date of birth, and your employment information.
Your existing credit. Information about credit that you have, such as your credit card accounts, mortgages, car loans, and student loans. It may also include the terms of your credit, how much you owe your creditors, and your history of making payments.
Your public record. Information about any court judgments against you, any tax liens against your property, or whether you have filed for bankruptcy.
Inquiries about you. A list of companies or persons who recently requested a copy of your report.
WHY IS A CREDIT REPORT IMPORTANT?
Your credit report is important because lenders, insurers, employers, and others may obtain your credit report from credit bureaus to assess how you manage financial responsibilities. For example:
- Lenders may use your credit report information to decide whether you can get a loan and the terms you get for a loan (for example, the interest rate they will charge you).
- Insurance companies may use the information to decide whether you can get insurance and to set the rates you will pay.
- Employers may use your credit report, if you give them permission to do so, to decide whether to hire you.
- Telephone and utility companies may use information in your credit report to decide whether to provide services to you.
- Landlords may use the information to determine whether to rent an apartment to you.
WHO COLLECTS AND REPORTS CREDIT INFORMATION ABOUT ME?
There are three major credit bureaus–Equifax, Experian, and TransUnion–that gather and maintain the information about you that is included in your credit report. The credit bureaus then provide this information in the form of a credit report to companies or persons that request it, such as lenders from whom you are seeking credit.
WHERE DO CREDIT BUREAUS GET THEIR INFORMATION?
Credit bureaus get information from your creditors, such as a bank, credit card issuer, or auto finance company. They also get information about you from public records, such as property or court records. Each credit bureau gets its information from different sources, so the information in one credit bureau’s report may not be the same as the information in another credit bureau’s report.
WHO ELSE IS ALLOWED TO SEE MY CREDIT REPORT?
Because credit reports contain sensitive personal information, access to them is limited. Credit bureaus can provide credit reports only to:
-lenders from whom you are seeking credit;
-lenders that have granted you credit;
-telephone, cell phone, and utility companies that may provide services to you;
-your employer or prospective employer, but only if you agree;
-insurance companies that have issued or may issue an insurance policy for you;
-government agencies reviewing your financial status for government benefits; and
-anyone else with a legitimate business need for the information, such as a potential landlord or a bank at which you are opening a checking account.
Credit bureaus also furnish reports if required by court orders or federal grand jury subpoenas. Upon your written request, they will also issue your report to a third party.
DOES THE CREDIT BUREAU DECIDE WHETHER TO GRANT ME CREDIT?
No, credit bureaus do not make credit decisions. They provide credit reports to lenders who decide whether to grant you credit.
I’VE BEEN RECEIVING UNSOLICITED CREDIT OFFERS. WHY? CAN I OPT-OUT OF RECEIVING THESE OFFERS?
Credit bureaus may sell the names and addresses of consumers who meet specific credit criteria to creditors or insurers, who must then offer them credit or insurance. For example, a creditor could request from a credit bureau the names and addresses of consumers who have a credit score of 680 or higher and then offer credit to those consumers.
You can have your name and address removed from these lists by opting-out of the listing. This will reduce the number of unsolicited offers you receive. To opt-out, call
888-5-OPTOUT (888-567-8688) or visit
www.optoutprescreen.com . You will need to provide certain information in order to opt-out, such as your name, address, Social Security number, and date of birth.
You have the ability to opt-out of receiving offers either for five years or permanently. If you want to opt-out permanently, you will need to fill-out, sign, and mail-in a form. The form is available by either calling the toll-free number or visiting the website.
You can reverse your opt-out decision at any time to start receiving offers of credit and insurance again by calling the toll-free phone number or visiting the website.
Credit Report Errors
WHAT HAPPENS ONCE I SEND IN INFORMATION TO CORRECT INFORMATION ON MY CREDIT REPORT?
If you submit your dispute through a credit bureau or directly to the company or person that provided the incorrect information to the credit bureau, your dispute must be investigated, usually within thirty days. If you provide additional information during the thirty-day investigation, that investigation period may be extended an additional 15 days in some circumstances. When the investigation is completed, either the credit bureau or the company or person that provided the incorrect information to the credit bureau must give you the written results of its investigation.
If the information provider finds the disputed information is inaccurate, it must notify all three nationwide credit bureaus so they can correct the information in your credit report. You can get a free copy of your report if the dispute results in a change. This free report is in addition to your annual free report. If an item is changed or deleted, a credit bureau cannot put the disputed information back in your credit report unless the company or person that provided the incorrect information to the credit bureau verifies that the information is, indeed, accurate and complete.
You can request that the credit bureau send notices of any correction to anyone who received your report in the past six months. A corrected copy of your report can be sent to anyone who received a copy during the past two years for employment purposes.
WHAT IF AN INVESTIGATION DOES NOT RESOLVE MY DISPUTE?
If an investigation does not resolve your dispute, you can ask that a statement of the dispute be included in your future credit reports. You also can ask the credit bureau to provide your statement to anyone who received a copy of your report in the recent past, but you may have to pay a fee for this service.