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Whenever you apply for any type of
credit or financing, a credit report is pulled from at least one of
the three major credit bureaus. While there are hundreds of smaller
credit bureaus around the country, virtually every credit bureau is
affiliated with either TRW, Trans Union, or Equifax. These credit
bureaus collect and maintain information on the vast majority of
Americans, but they are not affiliated with the government in any
way. The credit bureaus are for-profit corporations and they sell
your personal information for money.
The credit bureaus receive your
personal information through the same lenders who grant you credit.
They have agreements with each of these credit grantors that require
the credit grantor to inform the credit bureaus of everything that
occurs in your relationship with the credit grantor. If you make a
payment late, the negative credit listing is quickly reported to at
least one of the three major credit bureaus and is added to your
credit history.
Credit reports are not just a record
of how you are currently managing your credit accounts.
Credit reports are histories of everything you are doing with
your credit now, and everything you have done in the past.
The credit bureaus collect this information, list it on your credit
report, and then sell it to other credit grantors who wish to see
your credit history before they decide to lend you money. The credit
grantors who review your credit are especially interested in any
negative credit. If you have shown any tendency to pay late, or to
disregard your financial commitments in the past, then the
creditors' computers will immediately reject your application. Just
like when you were in grade school, your credit report is your
financial report card to the world.
Who controls my Credit
Score?
Several companies keep track of your credit habits. Trans Union,
Experian, and Equifax. A model known as FICO, which stands for the
company that created it, usually determines your actual credit score
(see
Fair, Isaac and Co.
for more information). Your potential creditors will
likely use this score to evaluate your credit. They are generally
looking for a score of 620 or more as acceptable for most purposes.
A score of 680 or more can often reduce your interest rate on larger
purchases. The score that a lender will accept depends on the type
of loan. A 620 is usually acceptable for a mortgage but would be
considered risky for prime credit card companies who generally like
to see a 680 or higher.
Its difficult
to say exactly how this score is deduced as Fair Isaac does not
reveal the details of their model. We do know that it is largely
based on the following factors.
Payment history (35%).
The largest factor determined on your FICO score is your basic
payment history. The number of unpaid bills you have, any bills sent
to collection, bankruptcies etc... The more recent the problem, the
lower your score. In fact, even something as significant as a 30
day late payment can have a tremendous negative impact on your score
if it occurred within the last few months.
Outstanding Debt (30%).
Are your cards maxed out? High balances or more precisely, balances
that are close to your credit limit can negatively effect your
score. Keep your balances below 50% of your limit or pay the cards
off altogether (if possible). If you have to choose between paying
$1000 on three cards or paying off one card with a $3000 balance,
pay off the one card.
Length of your credit history (15%).
How long have your accounts been open? The longer, the better.
Recent inquiries (10%).
Every time you apply for credit of any kind, you create an inquiry
on your credit report. Lots of Inquiries negatively affect your
score. Inquiries within the last six months are especially
damaging.
Types of credit in use (10%).
How many and how much?
Having loans from finance companies
(Beneficial Finance, American General, etc.) can detract from your
score.
What kind of
Information is contained in a credit report ?
Merchant Trade Lines
These include all regular credit
lines such as department store cards, auto loans, mortgages, and
credit cards. If there is any history of late payment, or if the
trade line was included in bankruptcy, charged off, or put into
repossession, the listing will be considered negative by all credit
grantors.
Collection Accounts
When an account is referred to
collections because of delinquency or because of a bad check, this
appears on the credit report as a collection account. Collection
accounts can appear as paid or unpaid accounts. Any type of
collection account, whether paid or not, is considered very negative
by all credit grantors.
Public Records
Public records include bankruptcies,
judgments, liens, satisfied judgments, and satisfied liens. All
court records, including satisfactions, are considered negative by
all credit grantors.
Inquiries
Every time a potential credit
grantor looks at your credit file, a credit inquiry appears on at
least one of your credit bureau reports. If the number of inquiries
is very few over the last two years, then there may be no negative
effect on your credit worthiness. However, if there are many recent
inquiries showing on your credit report, credit grantors may become
nervous and deny you credit.
How Long Will Negative Information
Stay on My Credit Report?
The Fair Credit Reporting Act (FCRA)
requires that most negative credit items be deleted from your credit
bureau file in no more than seven years, except for a chapter 7
bankruptcy which can be reported for up to ten years. These are the
time limits for reporting negative credit. The creditor or
the credit bureau can choose to have the negative credit information
deleted whenever they please. Inquiries may remain on the credit
report for up to two years.
Can I See My Credit Report?
Most credit grantors are not allowed
by the credit bureaus to show you your own credit report. But you
can purchase your credit report from the credit bureau for a fee.
Once you receive your credit report, you may find that you cannot
read it because the information is listed in an unfamiliar code.
Trans Union and Equifax credit reports are very difficult to
interpret and understand. Experian credit reports, however, are
relatively easy for most people to read. Your best bet would be to
order a 3-in-1 combined bureau report since they are the easiest to
read. To order one, visit www.creditrepair.com.
How Much Bad Credit Does it Take for
Me to be Denied Credit?
As you may have already experienced,
even one small late pay listing may result in credit denials. It is
a myth that a large amount of positive credit can outweigh some
negative credit. Any negative credit whatsoever can become a
substantial credit obstacle.
Who Looks at My Credit Report?
With the passing of each year, your
credit report is used more and more often as a yardstick to measure
your character. Prospective creditors will always review at least
one of your credit reports before granting you credit. Today it is
increasingly common for insurance companies to review your credit
before extending auto or health insurance. Many employers now check
credit before they consider you for a position. If you rent, you may
have already been through a credit check to determine your
worthiness as a renter.
Credit is a way of life in America.
Without good credit, you have to take your seat in the second-class
section of our economy. But, if your credit is in shambles, you may
not be willing to wait for seven years while your credit report
clears itself.
Is there anything you can do to
speed your return to creditworthiness?
Many authorities, such as the news
media, will tell you there is nothing you can do. Newspapers,
magazines, and TV news journals all seem to be unanimous in
discouraging you from making any effort to clear your credit before
the seven-year limit.
How do these journalists explain the
numerous organizations which have removed thousands of negative
items from individual consumer credit reports over the past few
years? What about the thousands of Americans who have restored their
own credit? Why has the media repeatedly denied the possibility of
restoring credit when substantial evidence points to the contrary?
Who stands to gain from such a broad campaign of disinformation?
The giant credit reporting bureaus
have maintained a consistent public relations effort to dissuade
you from challenging the information appearing on your credit
reports. The credit bureaus are especially intent on steering you
clear of “credit repair” companies that promise to help you restore
your credit. The bureaus claim that these companies “cannot have
accurate information removed from your credit report.”
According to the
Public Interest Research Group Study; of the credit reports
surveyed, 29% contained serious errors that could result in the
denial of credit, 70% contained mistakes or errors of some kind, 41%
contained incorrect personal demographic identifying information,
20% were missing major credit cards, loans, mortgages, or other
accounts that are critical to demonstrating consumer credit
worthiness.
If you are like 70% of Americans
that have less than perfect credit, you’re sure to be interested in
the truth about credit reporting. If there were a legitimate
alternative to seven years of credit denial, that alternative could
mean early parole from the bad credit prison.
As the credit bureaus computerized
their processes and greatly expanded their reach and influence in
the late 1960s and early 1970s, consumer complaints began to mount
at the FTC and state attorney general offices. The credit reporting
agencies quickly became huge bureaucracies second only in size to
the federal government. The credit bureaus expressly served only the
needs of their clients, the credit grantors. Many consumers were
negatively affected by the credit bureaus, but they had no way to
correct or change their credit information.
The American consumer lay completely
at the mercy of the credit bureaus. The United States Congress
enacted the Fair Credit Reporting Act (FCRA) in 1971 to insure that
the credit bureaus investigate the credit items disputed by
consumers. This federal law set procedural guidelines, which gave
the consumer the right to challenge the accuracy, validity, and
verifiability of the credit listings appearing in their consumer
credit report. It also required that the credit bureau delete any
credit listing if it was inaccurate or could not be verified.
In theory, the FCRA charges the
credit bureaus with responsibility to the consumer as well as the
credit grantor. In reality, the credit bureaus resist, resent, and
reject consumer disputes. The credit bureaus would rather be left
alone to make a profit. And, each time a consumer challenges his
credit, profit is lost.
The credit bureaus first defend
their profits by erecting walls of stall tactics, including requests
for more information, further clarification, and additional
identification. The vast majority of consumers give up before they
even receive copies of their credit reports. If a consumer manages
to get a credit report, decipher the codified information, write a
coherent dispute, and mail it, the bureaus may still find some
reason to disregard the challenge. The entire dispute system is
designed to frustrate and discourage the consumer.
Many consumers have the idea that
the credit bureaus must complete their investigation within thirty
days or be forced to remove all disputed information. They threaten
to sue the credit bureaus if they don’t conclude their investigation
in time. In practice, such thinking is delusional. Nobody forces the
credit bureaus to do anything.
However, if you manage to submit a
valid dispute letter, and the credit bureau investigates your
dispute, the chances of success are good –whether or not the
negative listings are accurate! Accuracy actually has little
to do with the deletion of negative items.
If a credit bureau cannot verify an
item before completing its investigation, that item will be removed.
Many creditor grantors are simply reluctant to take the time to
verify the data. While the credit bureaus are in the business of
reporting credit histories, creditor grantors are not.
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