Archive for the ‘Credit and Credit Repair’ Category

What is a Credit Score?

Credit Scores were first developed over fifty years ago when Fair Isaacs Corp Developed the first credit scoring system. Today, the Fair Isaacs Corp Credit Score, which is called a FICO score, is the industry standard and used by lenders to evaluate whether to offer an individual a line of credit or a new home mortgage.

Credit scores are based upon information in a persons credit report and based on a numerical scale between 300 and 850. 850 is considered a perfect credit score, but anything above 760 is considered a very solid credit rating. While the amount of debt a person has plays an important role in determining their credit score, this typically only makes up about 30% of the credit score. The rest of the credit score is based off of the way an individual has paid off their debts, as well as the number of delinquent payments, the length of the credit history, and the types of loans offered.

Since a big part of a credit score is not how much debt you have, but how well you manage this debt, it is possible to maintain a healthy credit score even with a high level of debt. However, most loan administrators suggest maintaining a 30% to 50% debt to credit limit ratio.

One of the most important things that you can do to maintain a healthy credit score is to pay all bills off on time. Today, most banks offer free electronic payments, which can be a quick and easy way to ensure that all bills get paid on time. If a payment is missed, it should be paid off as quickly as possible.

Another important step in maintaining a healthy credit score is to pay off the debts that have the highest interest first, without a great deal of debt transfers. Many people, especially those who are having credit problems, also like to apply for any semi-attractive credit card offer they get, but too many credit inquires reduces your credit score, so this should be avoided. Instead, it is suggested to only apply for new credit once a year and to research potential credit offers before actually applying. Once a good credit offer is found, the credit inquire process should be completed in as short of a time frame as possible.

One big factor that goes into a credit score is the length of a persons credit history, so it is not usually advised to cancel a credit line, even if there is no credit balance. Instead, you can simply cut up the credit card, but leave the account open. This helps provide a longer credit history, even if you are not using it.

Using a debit card instead of a credit card can also be a good idea. These can be used in the same way a credit card would be and are accepted at all major retailers, but do not draw money from a credit line, but instead directly from a persons checking account. Some people even find that when they use cash, they are less likely to spend money, so it may be a good idea to do a little experimenting to get in the habit of efficiently managing money.

While credit reports and credit scores are arguably a very controversial device, if you wish to borrow money, having a high credit score is essential.

Maintaining a Healthy Credit Score

creditscoreCredit scores are a numerical value between 300 and 850 that is based upon a persons credit report. The credit score is intended to provide prospective lenders with a way to evaluate a persons creditworthiness, with credit scores between 760 and 850 being classified as the best. Credit scores are used by many different types of lenders, with the mortgage industry usually relying very heavily upon credit scores. Having a high credit score can be very important when applying for a mortgage and getting a good interest rate, especially in today’s market where lenders are much more careful about who they lend too.

There are several companies that offer credit scores, including each of the three different credit reporting agencies, but the credit score compiled by Fair Isaacs Corp, called a FICO score, is the standard in the lending industry.

While credit scores have been around for over fifty years, it was not until 2003 that the average consumer could easily and inexpensively view their credit score. This came as part of the Fair Credit Reporting Act of 2003, which required all credit reporting agencies to provide individuals their credit reporting score at a fair price. Now, credit scores are available for between $6 and $16.

Steps for Getting and Keeping a High Credit Score

Credit scores are based upon the information in a persons credit report, so it is not possible to directly change your credit score if there is a problem. Instead, it is necessary to fix problems with your credit report, which will in turn raise your credit score. This is why it is so important to regularly check your credit report for errors and fix them as soon as possible.

As a consumer, it is also important to pay all bills on time and not max out your credit lines. This is because credit scoring agencies place more emphasis on your payment history than they do on your level of debt. Late payments, especially those sent to a collection agency, can have a very negative impact on a credit score.

Requesting new lines of credit too frequently can reduce your credit score, so instead it is better to try to limit your requests for new credit to as short of a time period as possible. This is especially important when trying to repair bad credit, because many people will begin applying for each credit card offer they get, but this actually lowers a persons credit score.

It is also important to balance your debt in a smart and efficient manner. In another words, pay off debts that have higher interest rates or less favorable terms first and try to avoid transferring debt among credit lines too often.

Since a big part of having a good credit score involves using your credit responsibly, most loan officers suggest using your credit, but not exceeding 30% to 50% of your credit limit. Of course, this should be taken with a grain of salt, because it is in their best interest for you to use credit.

Another factor that goes into a credit report is the length of your credit history. Rather than canceling credit cards you are not using, it is typically better to simply destroy the credit card so you can not use it, but keep the account open. This way you can extend your credit history, without actually using it. Instead, begin using debit cards, which offer the same functionality as a credit card would, without the extra fees.

Having a high credit score can mean the difference between getting a good interest rate and getting a great interest rate. A low credit score can quite literally cost you a great deal of money, so it is important to take measures to improve and maintain a healthy credit score.

What is a Credit Score?

There are usually a number of factors that a lender will consider when deciding whether or not to offer someone a mortgage. For many lenders, a persons credit score is a very important consideration. Credit scores are a number between 300 and 850, which represents how credit-worthy the individual is.

Lenders and merchants have been using credit reports for thousands of years, which is basically information about a persons borrowing and spending habits that is shared among businesses. However, the credit score was not developed until 1958, when the Fair Isaac Corp implemented a system to analyze credit reports and rate them on a numerical scale.

As is the case with a credit report, credit scores are intended to provide a non-discriminatory means of evaluating a persons creditworthiness, so race, gender, and religion do not come into play.

Since the development of the Fair Isaac Corp credit scoring system, which is called a FICO score, several other companies have developed their own credit scoring system, but none have become more popular than the FICO Score.

While each of the three credit reporting agencies are required to provide a free copy of your credit report every year, there is no such requirement for your credit score. Instead, consumers must purchase their credit score, which typically costs between $6 and $16. Each of the credit reporting agencies also offer a proprietary credit score, but these scores are different than the credit score offered by the Fair Isaac Corp.

How is a FICO Credit Score Generated?

There are a number of different factors that go into a FICO credit score, which is based off of information from a each of the three credit reporting agencies. A persons FICO score considers several different factors and rates people on a scale between 300 and 850, with 850 being the highest credit score possible.

The following factors are considered when generating a credit score:


  • Payment history for credit cards, loans, mortgages, finance company accounts, and retail accounts
  • Amount of money that is delinquent and how long this money has been delinquent
  • Number of debts that have been successfully paid off
  • The number of items that were paid late
  • Any bankruptcy, items sent to collection agencies, lawsuits, liens, wage adjustments, and any other lawful judgments, as well as the time since these events have occurred.

Length of Recorded Credit History:

  • How long each credit line has been open, as well as how active the account is

Different Types of Credit:

  • How many different accounts are open, including credit cards, mortgages, loans, and retail credit

How Much is Owed:

  • How much is owed on each line of credit
  • How much of the line of credit has been paid off
  • How much of the line of credit is still outstanding
  • The proportion of available credit to used credit
  • How many accounts currently have an outstanding balance

New Credit Lines:

  • How many accounts have been opened recently and how long it has been since these accounts where opened
  • How many times a persons credit has been checked recently and how long it has been since the inquiries
  • Whether new credit has been used in a positive manner, especially after periods of late or delinquent payments

Each of the above factors is considered by the Fair Isaacs Corp when they generate a persons credit score. Since there are so many different factors, it is very easy for a mistake on a credit report to result in a lower credit score, which is why it is so important to regularly check your credit score for errors.

Credit Repair Companies and Credit Counselors

If you have less than perfect credit, then you have likely received numerous offers from credit counselors or businesses that specialize in credit repair.

In truth using these types of companies is not usually going to be in your best interest. This is because all of the things they can do, such as negotiating with creditors, is something that can be done by the individual.

Credit Repair Agencies

Credit Repair Agencies are basically simply another lender and if you have ever watched any late night infomercials, you are sure to have seen their advertisements. They might say they will “Get rid of your Bad Credit!” or “Quickly Raise your Credit Score,” but in the end, they are out to make a profit.

Most credit repair agencies will offer free credit counseling to get people interested in their service, then they will set up a plan, where you pay them and they pay your creditors. It is basically just like taking out another loan, but with a much higher interest rate than if you had just spoke directly with your creditors.

In fact, credit repair agencies are so often the root of a business complaint that the Federal Trade Commission, published several warning signs that you might be dealing with a dishonest credit repair service.

Warning Signs of Dishonest Credit Repair Companies

  • The Credit Repair Company requests payment before they actually do anything.
  • The Credit Repair Company does not inform you of the many things you can do for free, without their help, and also doesn’t mention your legal rights.
  • The Credit Repair Company advises that you do not attempt to contact the Credit Reporting Agencies, TransUnion, EquiFax, Experian, instead suggesting that they have to do it
  • The Credit Repair Company tells you to create a new identity, using a employer identification number instead of your Social Security Number.

Risks of Using a Credit Repair Company

Using a credit repair service, like you might find advertising on late night television that they can
“Fix Bad Credit!”, is seldom in the best interest of a person with poor credit.

These companies may be able to lower your monthly payment, but this is likely something you could do on your own by speaking with the credit company. Instead, they make their money by offering a loan at subprime rates.

Credit Counseling

Credit Counseling is usually a better option than using a credit repair company, although there are a number of dishonest credit counseling companies as well.

The difference between a credit counseling company and a credit repair company, is that the credit counseling company will go over all of your debts and then speak with your creditors. The counselor will request that some of the debt be forgiven, such as late fees, and will request a lower interest rate, in return for the debt being repaid.

This is again something that the average consumer can do, because having the debt repaid is in the best interest of the creditor, so they are often willing to lower interest rates and forgive late fees.

Always ensure that the credit counseling company is non-profit and some are even run by the actual credit card companies.

Even though they are technically non-profit, credit counseling companies actually get paid a commission from creditors when they are able to work out a deal with a borrower. Sometimes, you pay the credit counseling company, who will in turn pay the creditor, which is referred to as a Debt Management Plan(DMP), but these should only be used as a last resort. In either case, there should not be a fee for using the credit counseling service.

While many of the things a credit counseling company does are within reach of the average borrower, they can provide a helping hand for some.

Since there is so much dishonesty in the credit and credit repair industry, it is important to always thoroughly analyze the company before using them.

Evaluating a Credit Counseling Company

Below are some tips for analyzing a credit counseling service.

  • Try to find a local company. Often the Better Business Bureau will be an excellent place to check prospective companies.
  • Be Wary of Companies Asking for Money. A legitimate Credit Counseling Company should send you free information and advice about how to restore your credit.
  • Watch out for Credit Counseling Companies that offer a Debt Management Plan as the first option, DMP should only be used as a last resort.
  • Determine how the company gets paid. This will help you understand their motivation.
  • Determine how the debt will be paid off. If using a Debt Management Plan, inquire into how the plan works and how it is paying off your debt.
  • Check behind the company to make sure the debts are actually being paid off.
  • Always have a written copy of anything you do with the credit counseling company.

Fixing Your Credit on Your Own

In a perfect world, the best way to hand bad credit would be to avoid taking out debt in the first place.
Unfortunately, it does not always work this way, so it may be necessary to repair your credit.

If this is the case, speaking directly with the creditor should be your first step. The creditor wants you to pay them back, so will often work with you to reduce interest rates and forgive late fees.

Speaking directly with your creditors is almost always just as effective as using a credit counselor. It is also much safer and less expensive than using a credit repair company.

Finding and Fixing Errors on Your Credit Report

There are three different credit reporting agencies, which provide all of the Credit Reports. These companies collect information into a single database and then resell it to interested banks or lenders.

These three companies, Experian, Equifax, and TransUnion, all provide the same report, but it is possible that a discrepancy could show up on one, which might not be visible on the others. However, once it shows up in the database of one of the credit reporting agencies, the error will subsequently be transmitted to the other two agencies.

As a result of how easy it is for a discrepancy to propagate itself among the three credit reporting agencies, it is important to regularly check all three and fix any errors as they arise. Checking your credit report is often one of the first ways that you can tell if you have been the victim of identity theft as well,

Getting Your Credit Report for Free

Each person is eligible to receive one copy of their credit report for free from each of the three companies every 12 months. One of the easiest ways to get a free copy of your credit report is to use You will have to create an account at, then select which credit agency you want to send you the report.

However, it is not a good idea to get all three reports at once. Instead you would want to receive one copy and review it, spreading out all three over the course of a year. They are supposed to share their information, so fixing an error at one agency should fix it at the other two.

Always remember to keep track of who you have already asked for a credit report, so you can get all three free credit reports every year.

Fixing Errors on Your Credit Report

Errors can occur because of several reasons, but it is most often because a creditor did not record a payment. In this event, even though you paid the debt, it is reported as a late or missed payment, which will hurt your credit score. If you find an error like this, it is important to act on it as soon as possible.

First, collect all the documentation you can to show that you paid the bill or debt. This includes check stubs, bank statements, and any letters from the creditor. Once you have the documentation, you will need to send a letter explaining the problem to both the credit reporting agency, as well as the creditor. Along with the letter, you will have to send your personal information, such as name, address, birth date, and social security number. It is a good idea to speak with the creditor as well, because they can often fix the error on their end quickly.

It is important to be careful when fixing errors though, because creditors take into account how often the credit report has been accessed. So, it is possible to raise alarms if too many people run your credit while you are fixing the error. If at all possible try to fix the problem as soon as possible, so the people that are accessing your credit report to fix it are not get stretched out over an extended period of time.

Once the error has been fixed, it is very important to ensure that it has been removed from your credit report.

Importance of Reducing Your Debt Prior to Applying for a Loan

When applying for a loan or mortgage, many lenders will charge the borrower for the credit report. If they charge more than $20, then they are very likely being dishonest, because this is the standard rate. Since checking the borrowers credit report is often the first thing a creditor does, it is important to know whats on your credit report and fix as much as you can before applying for the loan.

In regards to current debt and outstanding payments, it is a good idea to pay these down as much as possible before speaking with a lender. It is also possible that there may be a mistake on the credit report, which even if you have documentation for, you bank would not overlook.

One of the most important things a prospective homeowner can do to improve their chances of receiving a mortgage is to reduce the amount of debt on their credit report. This can be a great first step to new home ownership.

Understanding Your Credit Report

creditcard1Credit reports are often used by creditors to determine how much of a risk a person would be to lend to. These reports contain information about a persons financial dealings, with some other limited personal information.

Who Can View My Credit Report?

There are a number of people who could potentially view your credit report, including the government, banks and other creditors, and insurance companies. It is also possible for employers, both present and prospective, to view your credit report. This is common in professions where they are worried about company theft or embezzlement.

In fact almost anyone can see your credit report providing that they are able to offer an actual financial reason why they should be able to see your credit report. Each person is also eligible to receive three free copies of their credit report every year, one from each of the different credit reporting agencies.

Since there are so many potentially important people who could looking at your credit report, it is important to identify any problems and try to fix them as soon as possible. This can not only make it easier to receive a loan or mortgage, but can also effect many other parts of your life.

What Type of Information is on a Credit Report?

At first glance, a credit report can seem very confusing, but all of the information in a credit report can basically be divided into four sections.

Personal Information: Credit Reports are prohibited from containing information about race, religion, or sexual orientation, but they do contain a great deal of other identifying information.

This includes the persons name, aliases, current addresses, previous addresses, Social Security Number, Date of Birth, current employer, past employer, and information about husbands or wives.

Credit Information: As the name implies, credit reports contain a great deal of information about your credit history. This includes mortgages, credit card debt, unpaid debt, debt that has been sent to a collections agency, and some utility information. Also, in the case of loans it has information such as the type of loan, length, cosigners, and a two year payment history.

While the credit information is usually very inclusive, it can not include bankruptcies that are more than 10 years old or other debt that is older than 7 years.

Information from Public Records: This includes any state or country government records, including information on bankruptcies, tax liens, or other civil judgments. It can also include child support.

Recent Credit Report Requests:: This section lists the people who have requested your credit report over the last year, although it goes back 2 years for employers. Sometimes, too much activity can raise a red flag to lenders and may also be an indication of identity theft.