Credit Statistics
Credit is the driving force for individuals looking to secure loans and credit cards. It will dictate the interest rate you will receive from lenders. With the subprime fallout and "credit crunch" we are in, lenders have tightened up on lending guidelines. What was true in mortgage lending just a few months ago isn't anymore. From everything we are hearing and seeing in the industry, it is only going to get tighter. This is why knowing about your credit and what you can do to increase your credit score are important.
Here are some scary facts for you. In June 2004, The U.S. Public Interest Research Group published the results of a survey it conducted in 30 states to test the validity of credit reporting. They found that twenty-five percent (25%) of the credit reports contained errors serious enough to result in denial of credit. Seventy-nine percent (79%) of the credit reports had some kind of error on them and fifty-four percent (54%) of the credit reports contained personal demographic information that was misspelled, long-outdated, belonged to a stranger, or was otherwise incorrect.
How Do I Get A Copy Of My Credit Report?
Type in "credit report " on the internet and you will have hundreds, if not thousands, of sites that will offer you a free credit report. The problem is these aren't free and many of these sites are, or have been, in lawsuits over deceptive advertising tactics. There are ways for individuals to get their credit report. The government passed legislation that mandates that each of three main credit bureaus Experian, Equifax and Trans Union, must provide you with a free credit report once a year. While these reports are good to review, they are only raw data. Your credit score will not be provided. The site I have used in the past ,and do reccomend is www.MyFico.com. They will provide you with a credit report that will give you a score for each bureau using their scoring module.
Understand Your Credit Score
Your credit score will range from 350-850. The higher the score, the stronger credit profile you have. 720-850 is considered excellent credit, 680-719 is good credit, 620-679 is fair credit, 540-619 is below average credit and 539 and below is poor. Each one of the credit bureaus will have a separate score for you. These scores will differ. There are a few reasons for this. Each of the bureaus uses their own scoring module and not all the information gets reported to all three bureaus. Almost all mortgage lenders will pull all three of your credit scores. They will use the middle score of these three.
What Gets Reported On My Credit Report?
Any account you have had with a financial institution that reports to the any of the three credit bureaus will show on your credit report. These accounts will show the current status they are in (open, closed, paid off). They will also will show a payment history over the last 24 months the account was being reported and will show the number of 30, 60, and 90+ late payments on the history of the account. You will see a public record section as well. Here will be any judgments, liens, bankruptcies or other actions that have been reported. The other information to look for is the AKA (any version of your name that is being reported), inquiries (which companies have looked at your credit) and employment (list of employers listed for you).
You also want to know what doesn't get reported to the credit bureaus. Car insurance, rent, utility bills and cell phone are the most common items that don't get reported to the credit bureaus. However, these companies can report you to collections for bad debt that will go on the credit report and hurt your credit score. There are times that these accounts can be used to help you secure a mortgage loan. If your lender ask you for "alternative" credit, these are types of accounts they will want to get a payment history on.
What To Do If There Are Errors On My Credit Report?
Fixing erroneous information on your credit report is the fastest way to improve your credit score. If you do find errors you will want to make a copy of the credit report (keep the original for your records). Circle the information that you are questioning. Write a letter to the bureau that the information is being reported to (Equifax, Tran Union, Experian). You will need to write separate letters to each bureau if the information is being reported to more than one of them. If you have proof you have paid an account, you will want to send that documentation as well. Prepare a letter to the creditor that is reporting the erroneous information. Let them know that you have found information you feel is incorrect and you have reported this to the credit bueau(s). This is especially important if you feel you are a victim of identity theft or fraud. You can also dispute this information with the credit bureaus online. I prefer doing it through the mail so you have records of everything and can send in documentation, if you have any. You can find the addresses for the credit bureaus at the end of your credit report.
How Can I Increase My Credit Score And Handle Credit In The Future?
There are ways to improve your credit score quickly. The quickest way to get your score up is to pay balances on revolving credit lines (credit cards) down. There are two magic numbers to remember when trying to get your scores up, 50% and 33%. These are the percentages that you want your balance to be at compared to the max limit of the account. The difference between having a balance on your credit card that is 51% of the limit of the card and 49% of the limit can make a big difference in your score. Try to get all balances down to 50% and keep them there. The next jump in your score will happen if you can get the balance down to 33% or lower and keep it there. You do not want to leave these accounts at a 0 balance when trying to improve your score.
One of the best things for a good credit score is time. The longer you can show you have made payments on time the better your score will be. The longer you get away from a negative item on the credit report, the less of an impact it will have to your score. I read recently that if an individual can make an installment loan (mortgage, auto loan, etc) payment for 24 months on time, their score will increase 40-70 points. Try not to close accounts you have had open for a long time and have a good payment history. Opening new accounts does cause your score to drop.
Professional Help - Credit Repair
Cleaning up your credit can be a daunting task. I have seen people that have been able to do it in 30 days but I have also seen people work on it for months, if not years and still not be getting anywhere. There are services out there that will help you with your credit report. Be careful when choosing a company to do this. Companies that make claims such as, "we can erase bad credit- guaranteed" or "we can remove bankruptcies and judgments permanently, " you will want to avoid. Check with the Better Business Bureau for any third party you choose to work with. You can also go to the Federal Trade Commission website at www.ftc.gov for list of your rights in regards to credit repair services. You will also be able to see the Fair Credit Reporting Act (FCRA) on this site.
Here are some of the things you want to be aware of if you are going to seek help from a credit repair specialist. By law, the credit repair organization must give you a copy of the "Consumer Credit File Rights Under State and Federal Law" before you enter into a contract. They must also give you a written contract that shows your rights and obligations. There are specific laws for your protection. For example, a credit repair company cannot: make false claims about their services, charge you until they have completed the promised services, perform any services until they have your signature(s) on a written contract and have completed a three-day waiting period. You may cancel the contract during this three-day period and will not have to pay any fees. The contract must specify the following: payment terms for services with the total cost, a detailed description of the services to be performed, how long it will take to achieve the results, any guarantees they offer and the company's name and business address.
We have heard many stories of people that have sent thousands of dollars to "credit repair" companies and their credit situation did not improve. This is why we will always try to give you reputable outlets for these types of services. We do recommend contacting a credit repair specialist for your credit repair needs.
Here are some final thoughts and a recap regarding your credit. Get a copy of your credit report to make sure the information is correct. Keep balances low on your credit cards and keep accounts in good standing open. Try to keep the number of new accounts you open at a minimum. If you need professional help with credit services choose wisely. Credit is the number one factor in getting approved for a loan and will dictate the interest rate you will be offered.