A credit score is a number usually between 350 and 850 that is calculated by a mathematical formula that evaluates many types of information on your credit report. The higher your score—the better. This score helps lenders and others decide how likely you are to repay your debts. Credit scores do matter. They affect whether you can get credit, your interest rate or credit limit on a credit card, auto loans, mortgages, and even the types of jobs and rental housing available to you.
Scores under 500 = Bad Score. Scores 500-600 = Poor Score. Scores 600-650 = Fair Score. This usually results from late payments, collections and charge- offs. You will most likely be charged the highest interest rate allowed by law in your state or you could be turned down completely. Scores 650-700 = Good Score. As long as your debt to income ratio is low you will be approved and will likely pay a lower interest rate on your loan. Scores 700 and above = Great Score. You are considered a "prime borrower" and will be able to obtain favorable financing terms.
Negative credit information can remain on your credit report for seven years. Chapter 7, Chapter 11 and Chapter 13 bankruptcies are reported for ten years from the date filed. Positive information should stay on your report forever.
RIGHT 1: The right to view your credit report. This portion of the law requires that the credit reporting agencies supply you with a full report on your credit transactions at any time you request one. There is no charge for the first credit report you request annually. For every subsequent credit report you request, the credit reporting agencies are allowed to charge a reasonable fee. However, if you have recently been rejected for credit you are entitled to a free credit report even if you have already requested one that year.¶ RIGHT 2: The right to know who has inquired about your credit. The law allows you to know every bank, credit card company, employer, etc. who has requested a copy of your credit report. This even includes all the times the credit reporting agency has pulled your file. RIGHT 3: The right to request verification of information you believe is incorrect. This allows you to have a negative entry checked. This guarantees that every time you tell a credit reporting agency that an item is incorrect, they will investigate the item. Without this portion of the law, the credit bureaus would be able to refuse to investigate your disputes. RIGHT 4: The right to insert missing data into your credit file. Often you will have credit granted to you that never makes its way into your credit report. This portion of the law allows you to report all this good credit information to the credit reporting agencies and have it entered into your credit report. RIGHT 5: The right to automatically remove information from your credit report that is over seven years old. (Ten years for bankruptcy) This guarantees that past financial indiscretions do not follow you for the rest of your life. RIGHT 6: The right to place your personal statement in your credit report. Some people have negative credit due to extraordinary events such as loss of a job, sickness, divorce, etc. This law allows you to have a written statement of 100 words or fewer placed in your credit report. This can be used to explain to future creditors what caused the bad credit and why it was a one-time occurrence. RIGHT 7: The right to privacy of the information in your credit report from anyone other than legitimate members of credit reporting agency. This states that no one can look at your credit report without your permission. That is why creditors have you sign a form allowing them to examine your credit report. The only exception to this right is the credit reporting agencies. They are allowed to look at your credit report without your permission as long as it is for legitimate business purposes. RIGHT 8: The right to have your credit report transferred from one area to another any time you relocate. This provision of the law guarantees that your credit history follows you wherever you go. This allows your hard-earned good credit to follow you all over the United States. Unfortunately, it also means that any bad credit you have also follows you across the country. RIGHT 9: The right to use the small claims court system to resolve any disputes with the credit bureaus about incorrect or inaccurate information in your credit report. This gives you the right to your day in court. If something on your credit report is inaccurate and you can't get it repaired through the credit repair process, you have the right to present your evidence in a court of law to resolve the dispute. RIGHT 10: The right to know exactly why you were refused credit. This means the creditor who refused you credit must inform you exactly why you were turned down. This request must be made by you to the creditor within 10 days of your being turned down.
Credit repair companies assist consumers in increasing their credit scores. Using a credit repair company eliminates the time you would spend gaining knowledge of consumer laws. Many individuals simply do not have the time, experience, patience or organizational skills to deal with bureaucracies. Just as people can prepare their own tax returns, many choose to use tax preparation services or accountants.
Lenders look at your credit report to see if you are able to manage credit responsibly, but they also get a credit score from one of the credit reporting agencies. These scores are known generically as FICO scores. That's because the credit reporting agencies use Fair Isaac Corporation to create their proprietary credit scoring models. A credit scoring model estimates your creditworthiness based on the information in your credit report. Outstanding credit lines aren't bad, but they can reduce the amount of money that a mortgage lender is willing to loan you. That's because the lender can't stop you from using those lines, and if you overextend yourself you're less likely to be able to make the mortgage payment. According to the Fair Isaac Corporation Web site, closing accounts as a short-term strategy to raise your credit score is not recommended. Here are some suggestions from that site for improving your credit score:
- Pay your bills on time. Delinquent payments and collections can have a major negative impact on a score.
- Keep balances low on credit cards and other "revolving credit." High outstanding debt can affect a score.
- Apply for and open new credit accounts only as needed. Don't open accounts just to have a better credit mix -- it probably won't raise your score.
- Pay off debt rather than moving it around. Also don't close unused cards as a short-term strategy to raise your score. Owing the same amount but having fewer open accounts may lower your score.
- Make sure the information in your credit report is correct. It won't affect your score to request and check your own credit report. If you find errors, contact the credit reporting agency and your lender.
- They're looking at the total picture and you should, too. One account isn't going to make or break your credit score and limit your ability to get a mortgage. Look at all your outstanding credit relationships.
Your FICO score is a credit rating produced by the Fair Isaac Corporation. It's used by most lenders to help them decide whether you're a good credit risk. Fair Isaac crunches the numbers from your credit report, and spits out a score somewhere between 300 and 850. A low score says you're a bad credit risk, a score of 750 or higher puts you in the catbird seat. Here are the factors considered when calculating your FICO score and an estimate of how heavily each factor might be weighted. Visit the Fair Isaac Corporation Website for more information on what helps and hinders your credit score.
When a lender gives up on collecting a debt, calling it a charge-off, it stays on your credit report for seven years from the date of last activity. Normally you can't get the lender to remove the charge-off, however, there's no harm in asking. "What you really want to concentrate on is having the charge-off reported as being paid in full, even if you negotiate a settlement," says Ed Maietta, Director of Counseling at Consumer Credit Counseling Service in West Palm Beach, Fla.