Five Secrets to your Credit Report

From creditdebt.toughchild.com - 

If you’ve ever applied for a loan or credit card, chances are your lender acquired and examined a copy of your credit report before deciding whether or not to grant you credit.


Your “Credit Report” is a record of your credit history and it’s prepared by agencies called “Credit Bureaus”, or “Consumer Reporting Agencies.” These are private organizations and have no affiliation with the United States (or any) government. There are 3 major credit bureaus in the United States (2 in Canada) and their names are Experian, EquiFax, and Trans Union.

Did you know that credit reporting is a multi-billion dollar a year industry? It’s true! The credit bureaus are for-profit organizations that generate billions of dollars in revenue each year from selling copies of credit reports to creditors and mailing lists.

Your credit report affects more than your financial life. It could affect your education, career, and even your relationships. Your credit report is used not only by lenders and creditors, but also by auto, life, and home insurers, future employers, and even some educational institutions. It affects the interest rates you’ll pay on everything!

So as you can see, your credit report can have a critical impact on many facets of your life. For example, because of a bad credit report you could be forced to pay tens of thousands of dollars MORE in loan interest over the life of your home mortgage. This is no exaggeration!

Since the credit bureaus prepare and distribute your credit report to lenders, they clearly wield a great deal of power over both your financial and personal life. But it would be a grave mistake to be intimidated by them, or to think that you have no choice but to live with the negative effects of a bad credit report.

In fact, there’s plenty you can do!

Always remember; Knowledge is power! There’re a few facts the credit bureaus would rather you don’t know. Let’s take a look at them, and you’ll see why.

1. Credit reports are filled with errors!

It will probably astonish you to learn the percentage of credit reports that contain errors. While there seems to be some disagreement, estimates range from 1 out of every 3 (on the low end) to as high as 90%! Here’s a “run down” on error estimates.

Percentage of Credit Reports Than Contain Mistakes

Attorney General of NY 1/3

Consumers Union 48%

US Congress 1/2

Charles Givens Organization 90%

So no matter who you believe, it’s clear that way too many credit reports have errors. So even if you think you have good credit, it might be well worth your while to get a copy of your credit report and take a careful look at it.

2. The law is on your side!

In 1972 Congress passed the Fair Credit Reporting Act (FCRA) to curb abuses by the credit bureaus. The FCRA is the governing federal law on the issue of credit reporting.

Under the FCRA, you have the right to dispute negative information in your credit report. The credit bureaus then have 30 days to verify the disputed information with the creditor. If they cannot (or do not) verify the disputed information within 30 days, it must be deleted from your credit report.

3. Even accurate data in your credit report must be deleted if it’s not verified.

If you’ve done any research into credit repair you’ve no doubt run across statements to the effect of “Negative data in your credit report that is accurate cannot be removed.” As stated above, the FCRA stipulates that any disputed information must be verified within 30 days, or it must be deleted. The “burden of proof” (in a manner of speaking), is on the credit bureaus.

4. Credit repair DOES WORK in most cases!

You’ll hear all kinds of opinions as to whether “credit repair” (i.e. efforts to improve your credit report) can be successful. The truth is, credit repair doesn’t always work perfectly. But in almost every case the process of credit repair will result in at least SOME improvement in your credit score, and most often that improvement is substantial. So credit repair does work!

Now you may be wondering why repairing your credit score would be of any concern to the credit bureaus. After all, don’t they make money by compiling and distributing credit reports regardless of whether those reports are negative or positive?

Well, yes they do, BUT…they also make money (a GREAT DEAL of money) selling names of people with poor credit, to creditors who have a specific interest in those people.

So why would some creditors want to bother with people who have poor credit? Because they know they can charge higher interest rates to those people, because the “bad credit risks” have no choice but to pay those exorbitant rates or forgo credit altogether!

Besides, investigating disputed information costs the credit bureaus time, manpower, and money. They have nothing to gain, and plenty to lose, when people take the initiative and dispute negative information on their credit report.

5. It’s perfectly legal to hire third party help to repair your credit.

There are plenty of “Credit Repair Agencies” who will help you repair your credit. But if a credit bureau even suspects you’re using such an agency, it’s likely they’ll try to discourage you from doing so. In some cases they’ll even go so far as to send you a letter stating that use of such agencies is illegal.

Such statements are (to put it as politely as possible) garbage! In fact there are laws that regulate such agencies. Now laws don’t exist to regulate illegal activity, except to ban it! When was the last time you saw laws that regulate what cocaine dealers must do to operate within the law?

Once again, repairing a bad credit report just isn’t in the best interest of the major credit bureaus. But unless you happen to be the CEO of one of those bureaus, the most important question as far as you’re concerned is “What’s in MY best interest?”

First of all, get a copy of your credit report and examine it. You can get a free copy of your report at http://www.annualcreditreport.com.

Secondly, take steps to improve your credit report. You can go about it in one of two ways.

1. Hire third party help.

If repairing your own credit report sounds too intimidating, there are plenty of credit repair agencies that will do it for you. But if you take this approach, there are three things you need to know.

First, they’re not cheap. Expect to pay from $2,500 to $5,000 for an attorney or $795 to $2,000 or more for a credit repair agency. Secondly, they don’t always do it right! Some will manage to get the negative data on your credit report removed while actually doing damage to your “credit score” (a calculated number used by creditors to evaluate you credit worthiness.) Finally, many are outright scams!

That’s not to say you shouldn’t hire third party help. If you do your “home work,” ask for references, and carefully select a reputable credit repair agency, you’ll be much better off than if you had done nothing. Still, if you’re willing to do a little work, there’s a much better alternative.

2. Repair you own credit report.

Anyone can fix their own credit report. If you can write a few letters, address, stamp, and mail them you can repair your own credit. There’re plenty of good books available that can walk you thought the whole procedure, and once you’re done a little study, you’ll be surprised at how simple the process is.

Bad credit will cost you many thousands of dollars and limitless anxiety. Even if you have fair credit, fixing you credit could still save you thousands in interest payments over the years.

Get a good book on the topic of credit repair, and get started fixing your credit report today! And don’t be intimidated by the credit bureaus. Remember, the law is on YOUR side!

Nice article with some good questions and answers, particularly for younger consumers.  The whole article is on the Chicago Tribune's website at http://www.chicagotribune.com/business/yourmoney/chi-tc-ym-started-bigda-0110jan10,0,4925763.story

So here are five common questions about credit scores, specifically FICO scores, the most widely used rating.


FICO scores range from 300 (the worst) to 850 (the best).
Q.  How do you establish a credit history and a FICO score?

A.  You need one credit account -- a student loan, auto loan, mortgage or credit card, for example -- open at least six months and reported to one of the three main credit bureaus: Equifax, Experian and TransUnion, says Barry Paperno, consumer operations manager for Fair Isaac Corp., the FICO providers.

Other bills, such as your rent or utilities, generally are not reported to the bureaus.

By law, you're entitled to one free credit report every 12 months from each of the three credit bureaus at annualcreditreport.com, the only site where you can access a free report.

You have to pay to get your credit score, however. If, for example, you request an Equifax report at AnnualCreditReport.com, you can buy the FICO score it's showing lenders for $7.95. Otherwise, you can buy scores for $15.95 each at myfico.com. (The Experian FICO score is available only to lenders as will the Equifax score after Feb. 14.)

Q.  Does carrying a credit card balance improve my rating?

A.  There is no advantage to carrying a balance, but the lower the better.

Nearly a third of your FICO score is based on your credit utilization, or the percentage of your credit limit that you use. Ideally, you want to charge no more than 30 percent of your available credit.

And even if you pay off your balance each month, it's unwise to charge the full amount of your credit limit. While lenders report to the bureaus every 30 days, the data may not reflect a payment, said Steven Katz, a spokesman for TransUnion. So it could look like you are using all of your credit.

Q.  Does it help my score if I close an old credit card?

A.  Generally, no. And it may hurt by raising your utilization ratio because you have less credit available.

In addition, 15 percent of your FICO score is based on your credit history (the longer the better). Closing an account you've had several years would shorten your history -- and lower your score.

Charge a small sum to the card every few months to keep it active and pay off the balance right away.

Q.  Will my score drop if I check my credit report?

A.  No. Applying for credit, however, does hurt your score so open new accounts sparingly.

One exception: If you are shopping for a mortgage or auto loan, FICO generally counts any applications made within a 45-day period as one. FICO recognizes you have to submit multiple applications as you shop for loan terms. [this is also true regarding car loan applications - those made within a short time of each other are considered one application].

Q.  How do late payments affect my score?

A.  Once you are 30 days overdue on a bill, your score could drop 60 to 110 points, depending on your credit file, according to FICO.

Your payment history makes up the largest portion of your FICO score, so don't pay late. If it's overdue, get back on track as quickly as possible. The more recently you've been late, the worse for your score.

"The key is to make sure you are paying at least the minimum due on time every month," said Katz of TransUnion.

On that last question, its important to note that a late payment alone does not affect your score, but a late payment over thirty days late does.  But its still a good idea to pay on time, since even one day late will cost you a $39 or so late fee.