Lenders, insurers, and employers want to see how you manage your credit and your life.
GET YOUR CREDIT REPORT
Buy your credit report online from any one of the 3 CRAs. Whether you buy it as a one-time purchase or buy the online company’s credit monitoring service, this report provides your complete credit profile.
You can get a free credit report (no scores) once a year from each CRA at AnnualCreditReport.com, or call 877-322-8228.
Been denied credit in the past 60 days? If yes, call and request a free credit report from each CRA.
- TransUnion (800-888-4213)
- Equifax (800-685-1111)
- Experian (888-397-3742)
Be Aware! – Online reports may not show complete information and they may not be up-to-date.
There are numerous companies that buy credit report information from the CRAs and “resell” it to consumers online. Their commercials are on TV all the time (e.g. FreeCreditReport.com). Most companies offer these reports as part of a credit monitoring service, while some allow you to buy it as a one-time purchase. However, most services refresh data only once a month, and some even quarterly.
Some websites (e.g. CreditKarma.com) give you free access to your credit report.
Often, credit reports obtained from a credit reseller show limited account information to simplify what you’re looking at. And sometimes, an account doesn’t even show up on the report.
When you apply for a loan, the lender needs to check your credit report and scores. To do this, they buy your report from a “Credit Reseller.” Reseller companies buy credit information from the CRAs, format the data into their own customized report, and then sell the report to lenders. These reseller reports often leave out some of your credit info.
Mortgage lenders buy a “Tri-Merge Report,” which combines data from all 3 CRAs into a single report. Mortgage lenders are required to use Tri-Merge Reports because they show all 3 CRA scores (the “middle score” is used when considering a loan application).
Bottom line: Reports from lenders may result in limited and/or missing information. And since lenders pay for these reports, many have a policy not to give you a copy of the report.
TOP 4 THINGS TO LOOK FOR IN YOUR REPORT
Your scores are based on monthly payment history. More accounts and longer histories yield higher scores.(More in Step 3)
Using more than 30% of your combined credit limits will reduce your scores.
Only inquiries from applying for credit in the last 6 months affect scores. Inquiries report for 2 years. (More in Step 2)
Adverse accounts reduce your scores. More adverse accounts = lower scores. Newer negatives have the greatest impact.(More in Step 5 & 6)
YOU NEED TO KNOW
Creditors, courthouses, and collection agencies report data to the CRAs. Data is reported once a month. Creditors choose which day to report. Recent payments made won’t show up immediately.
Creditors aren’t required to report. In fact, many credit unions report to only 1 CRA, resulting in different scores for each CRA.
13% of all reports contain errors resulting in the denial of financing (2013 FTC Study). Errors occur when creditors or the CRAs fail to update accounts. Another error is when a CRA reports another person’s data on your report.
Tax Liens report for 7 years from the date they’re paid/released. Unpaid tax liens remain for 10 years from the date field.
Bankruptcies: Chapter 7 reports for 10 years. Chapter 13 reports for 7 years. All bankruptcies report whether discharged or dismissed.
Collections & Charge-offs report for 7 years from the date they first became delinquent, including paid collections.
Judgments report for 7 years from the date filed.
Loan Payments: Each monthly payment reports for 7 years.
Your Credit Scores Indicate the Likelihood That a Loan Will be Paid On Time
YOU HAVE DIFFERENT TYPES OF CREDIT SCORES
Since different types of creditors use different scoring formulas, you can’t compare online credit scores to scores obtained from a mortgage company, credit card, etc.
See an example of how someone can have different scores for different industries:
- Mortgage Score: 680
- Credit Card Score: 561
- Online Score: 594
- Cell Phone Score: 432
- Auto Score: 625
- Insurance Score: B+
KNOW THE SCORING FACTORS
MAKE PAYMENTS ON TIME
On-time payments are the foundation of good scores.
THE LAST 2 YEARS OF HISTORY
impact scores the most. The longer your payment history is, the more it helps your scores.
THE NUMBER OF OPEN ACCOUNTS
factors into your payment history. Ideally, you want 4 or more open accounts. (More in Step 3)
MORE ADVERSE ACCOUNTS
means lower scores. Newer adverse accounts hurt more than older ones. (More in Step 6)
DON’T MAX YOUR CARDS
Lenders think you’re a greater risk.
A NEW LOAN IS A NEW RISK
If your credit report doesn’t show much debt, a small new loan ($1000) hurts scores for 4-6 months. A big loan ($25,000) hurts scores for a year or more.
CREDIT CARD USAGE RATIO
is your [total balances] divided by your [total limits]. A higher ratio means lower scores. (More in Step 4)
0-30% Ratio = Doesn’t hurt scores.
30-60% = Scores drop 20-40 points.
60-100% = Scores drop 40-100 points.
VARIETY OF ACCOUNT TYPES
Showing you can handle a variety of credit obligations helps scores.
are home & real estate loans.
are credit cards, charge cards, & home equity lines-of-credit.
are auto, recreational, or student loans paid by monthly installments.
require the full balance paid every month.
ONLY HARD INQUIRIES AFFECT YOUR SCORES
These occur when you apply for credit (i.e., mortgage, auto, credit card, cell phone).
HARD INQUIRIES AFFECT SCORES FOR ONLY 6 MONTHS
even though they remain on your credit report for 2 years. They affect your scores by 4-10 points per inquiry, depending on the type of credit application.
Mortgage Inquiry: about 4-7 points.
Credit Card Inquiry: about 6-10 points.
MULTIPLE INQUIRIES WHILE SHOPPING FOR LOANS
All mortgage and auto inquiries made within any 14-day period counts as only one inquiry against your scores.
Your History of Making Payments On Time is the Biggest Factor in Your Scores.
GETTING NEW ACCOUNTS
- Payment history, as a category, accounts for 50% of your credit scores! The last 2 years matter most! (See Step 2)
- Generally, adding a 2nd account can give you 20-30 points; adding a 3rd account can give you 10-20 points; and adding a 4th can give you about 5-10 points.
- Adding a mix of account types gives your credit profile more variety, further increasing your scores.
SECURED CREDIT CARDS
are an option for people with bad credit. These cards require a small deposit (e.g. $300), which essentially becomes your credit limit. Check out some secured cards at CreditCards.com, or contact your local banks.
Getting added as an “Authorized User” to someone else’s card can also help raise your scores. However, BEWARE! Think twice if the account has past late payments or a high card balance. This could hurt your scores more than help.
DEBIT CARDS and PRE-PAID CARDS
DO NOT help your scores.
CREDIT BUILDER LOAN
Aside from getting a new car loan, a Credit Builder Loan is a great way to establish credit and boost scores in as little as 4-5 months. Check with banks and credit unions. Example: A bank lends you $1000, but places it into a savings account (funds are frozen), which serves as collateral. The payback is usually spread over a 2-3 year term.
KEY POINTS ABOUT NEW ACCOUNTS
Inquiries: A new credit card or loan inquiry will show up immediately on your credit report, dropping your scores 4-10 points.
Credit Cards: A new credit card won’t show up on your credit report until 30 days from when you opened it. When it does, your scores will increase roughly 10-30 points (This is only relevant if you have less than 4 accounts).
Installment Loans: A new loan = more risk, which initially hurts scores; however, your new loan won’t report until 30-45 days from the opened date. Smaller loans ($1000) only hurt scores about 10-15 points. Score recovery time: 4 months. Larger loans ($25,000) pose a greater risk and hurt scores about 20-40 points. Score recovery time: 6-12 months.
Inquiries: While inquiries report for 2 years, they only impact scores for 6 months. You will gain back 1-2 points each month, until the inquiry is 6 months old.
Credit Cards: Most of the score-boost that comes from adding a credit card happens on the first month. Over the next several months, your scores will roughly increase another 5-10 points.
Installment Loans: Smaller loans ($1000) take about 4 months until they start helping scores. Larger loans ($25,000) are a greater risk and can take up to 12 months or longer to recover. Once a loan reaches its recovery point, it will boost scores about 5 points the first month, and 1-4 points each month thereafter.
Not all utility companies report to the 3 Credit Reporting Agencies – so if yours does, then consider the following point: If you live with someone who has a good payment record with the utility company, have them add you to their account. You’ll instantly acquire all of their good payment history. if their payment history is full of late payments, perhaps consider closing the bad account, and start fresh by opening a new account in your name.
Credit Card Balances Can Affect Your Credit Scores By Up To 120 Points.
YOUR UTILIZATION RATIO AFFECTS YOUR SCORES
WHAT IS UTILIZATION RATIO?
Your utilization ratio shows how much of your available credit you are using. The utilization ratio is viewed as a percentage.
CALCULATE YOUR UTILIZATION RATIO
Take your [TOTAL CREDIT CARD BALANCES] and divide that by your [TOTAL CREDIT CARD LIMITS]. This will give you a decimal number. Move the decimal to the right 2 numbers and you’ll have your Utilization Ratio Percentage.
BIG BALANCES ON NEW CARDS
Balances on new cards are treated as new debt. A new card with larger debt means more risk, and a bigger score reduction (up to 50 points). So, keep your new card balances low. As your account ages, the balance won’t be considered a new risk anymore.
CARD BALANCES ON YOUR CREDIT REPORT
Credit card companies report your card balance owed on the statement date. So, if you want to show a lower balance on your credit report, pay it down before the statement date.
Statement dates typically are based on the day of the month you opened the credit card account. So, each card will have a different statement date.
HIGHER RATIOS – BIGGER IMPACT
As your utilization ratio increases, the score reduction is greater in a compounding way. For example, going from a 35% to 50% ratio (a 15% increase) might reduce your scores by 30 points, while going form a 50% to 65% ratio (a 15% increase) might reduce your scores by an additional 45 points. The impact on your scores is greater at higher ratios.
Paying Off Debts That Are in Default Won’t Always Improve Your Credit Scores.
KNOW THE BASICS AND KNOW AND WHAT TO DO
What is a Collection?
An account that is 90-days past due.
What is a Charge-Off?
After 180-days past due, the creditor deems an account uncollectable and writes it off for their tax purproses (however, you still owe the money). In either case, creditors may attempt to collect the debt, hire a collection agency, or sue for judgment.
Paying a Collection or Charge-Off
will not remove it from your report. In fact, it will continue to report for 7 years from the date the account first went delinquent with the original creditor.
Some collection agencies will remove the account from your credit report by paying it in full – IF YOU ASK THEM NICELY. However, since it’s a verbal agreement, you won’t be able to do anything if they don’t keep their word.
No Notice Required:
Collection agencies aren’t required to notify you when they receive a collection account from a creditor. Nor are they required to notify you when they report it to the Credit Reporting Agencies.
happen when you’re sued in court and lose the case. The result of a judgment is a debt you owe to the party who sued you.
The Debt From a Judgment Means
(a) you won’t be able to obtain mortgage or business financing until the judgment is satisfied;
(b) unlike collections, judgments allow the winning party to garnish your wages and/or bank accounts.
To Satisfy a Judgment
(a) pay the debt to the party who sued you;
(b) obtain a signed & notarized satisfaction form from that party;
(c) file the satisfaction form with the clerk of courts. The court usually reports to the CRAs in 30 days.
Judgments Report For 7 Years
from the date they are filed, whether paid or unpaid.
are filed by the government when you haven’t paid your taxes. Unpaid tax liens remain on your report for 15 years from the filing date (unpaid tax liens will prevent you from getting a home or business loan). Paid tax lies remain for 7 years from the paid date.
Removing Federal Tax Liens:
(a) Pay the lien;
(b) Apply for a withdrawal of tax lien – IRS Form 12277;
(c) Once approved, the IRS will send you a Withdrawal of Federal Tax Lien – IRS Form 10916c;
(d) Send that form to the CRAs. Then, the CRAs must remove the tax lien from your credit report.
Chapter 7 Bankruptcy:
Wipes out most debt (excluding taxes and student loans), yet remains on your credit report for 10 years from the date it was filed.
Chapter 13 Bankruptcy:
Allows you to pay back a discounted amount of your unsecured debt over 3-5 years; it reports for 7 years from the date it was filed.
A bankruptcy will greatly reduce your scores at first, but after 2 years the impact is fairly small. Both Chapter 7 & Chapter 13 bankruptcies report to the CRAs even if the BK was dismissed or discharged.
Applying For a Mortgage?
Bankruptcies in the past 4 years can affect mortgage financing. Loan programs vary, but expect to wait at least 1-2 years before being able to buy or refinance a home.
Mortgage Loans Are Included
in a Chapter 7 bankruptcy unless the lender and homeowner sign a reaffirmation agreement prior to discharge. If not reaffirmed, a $0 loan balance will show on the credit report and no future monthly payments will be reported. If the homeowner stops making payments, the mortgage agreement allows the lender to foreclose and collect the balance owed.
HOW COLLECTIONS AND OTHER DEFAULTED DEBT AFFECT CREDIT SCORES
- Tax Lien
The age of the debt is the main factor on scores. After 2 years, the impact of a defaulted debt greatly diminishes. Hence, paying debts over 2 years old improves scores very little (2 to 5 points). For collections & charge-offs, it’s the date the original account first went delinquent. For judgments and tax liens, it’s the filed date.
Whether the debt is $5 or $5000, the score impact is the same. However, paying a defaulted debt to a zero balance will improve the score (if the default was less than 2 years ago).
Whether you pay a defaulted debt in full or settle it for a lesser amount, the account is updated to report a zero balance. Any comment on the report about settling an account for a lessor amount does not affect the score.
Some creditors and collection agencies report to only 1 or 2 of the CRAs. This often results in drastic variations between the scores you have with the 3 CRAs.
Removing Adverse Accounts From Your Credit Report Can Quickly Increase Your Scores
THE POWER OF CREDIT REPAIR
Adverse (derogatory) accounts in your credit report hurt your scores – especially accounts in the last 2 years.
Late payments, collections, judgments, tax liens, and bankruptcies can be removed..if the information is determined to be inaccurate or unverifiable.
The Fair Credit Reporting Act (FCRA) allows you to challenge information in your credit report and potentially remove it. Accounts removed from your report affect your scores immediately, and won’t be included in the score calculation the next time your credit is pulled.
When adverse accounts are removed from your report your scores improve. The amount of score increase depends on the number of adverse accounts remaining, as well as the amount of positive credit history in your report.
CDS can be removed in 1-6 weeks. Disputing accounts usually results in CDS posted on the credit report. Most mortgage loans require that CDS be removed before approving your loan. To remove CDS from your report, you’ll need to notify both the creditor and CRAs that the account is no longer disputed and to remove the CDS remark.
THE DISPUTE PROCESS
The Fair Credit Reporting Act (federal law) spells out the process by which you can dispute information in your credit report. Due to inaccurate, outdated, or unverifiable information often being reported in consumer credit reports, you have the right to dispute information directly with the Credit Reporting Agencies (CRAs).
When an account is disputed with the CRAs, they begin an investigation with the creditor. The CRAs have up to 30 days to complete an investigation.
Disputed accounts determined to be inaccurate are updated to report accurately. If the account is outdated or unverified by the creditor, then the CRA must delete the account from your credit report.
Upon completing the investigation, CRAs are required to send you investigation results. This is a partial credit report showing which disputed accounts were corrected, deleted, or verified. Deleted accounts mean scores have improved. Scores are not included with this report.
(a) CRAs sometimes neglect to investigate disputed accounts;
(b) Accounts with errors aren’t corrected;
(c) An account may get deleted from two Credit Reporting Agencies, but remains on the other CRA.
Hence, additional disputes may be required. Persistance pays off!
Identity Theft Can Leave You With Collections, Late Payments, and Worse
IDENTITY THEFT IMPACTS YOUR CREDIT
A thief opened a credit card in a man’s name and, by changing the address, made sure the victim never received any of the bills. The thief never paid the bills, so the new debt showed up as a collection on the victim’s credit report. The victim didn’t check his credit report; thus, he didn’t know about the new account. Eventually, the credit card company sued the victim, resulting in a judgment he now owes.
New late payments, a new collection, and a new judgment on his credit report for the next 7 years.
A thief gained access to a State database and stole personal and employment information. The thief used a woman’s personal information to file false tax returns and claimed her tax refund. The thief also filed false unemployment claims. Not only was the victim out her tax refund, but 9 months later the State filed a tax lien against her because of the fraudulent unemployment claims.
Tax lien on her credit report.
HOW DOES A THIEF STEAL YOUR IDENTITY?
Bad employee sells co-worker and customer information on the Dark Web (The hacker’s marketplace).
A hacker obtains customer usernames and passwords, and sells them on the Dark Web (The hacker’s marketplace).
Thief steals mail and files false tax returns to claim tax refunds.
Thief steals a laptop from a car and gains millions of veterans’ social security numbers.
PROTECT YOUR IDENTITY
Credit monitoring services vary – most require a fee. They alert you when a new inquiry is made, a new account is opened, or a change has been made to your credit profile. Ideally, choose a monitoring service that monitors all 3 Credit Reporting Agencies.
Call any 1 of the 3 Credit Reporting Agencies (CRAs) to place a free, 90-day fraud alert on your credit profile. This alerts lenders to verify your identity before giving you credit. You may also place a security freeze ($10 per CRA) on your credit reports. This requires lenders to enter your PIN # in order to check your credit.
Identity thieves use phishing emails to steal personal and financial information. These emails appear legitimate – looking like they came from your creditor – but, they are fake. The email contains a fake link, taking the victim to a fake website that looks real. The unaware victim uses their credentials to login, and the thief captures their username and password. Instead of clicking email links, use a web browser to go to a website.
RESTORE YOUR IDENTITY
GreenBayGreg of Dellaire Realty interviews the president of Credit Matters, Dan Krueger, to discuss the basics of credit repair and credit scoring.