Your FICO score or credit score is the secret behind everything in your financial life. This score, which is created by different pieces of credit data, can determine how much you pay for insurance, your car, rent and mortgage payments, utilities, and even whether you get a job or not. As important as your credit score is, do you really know how it works? The good news is you are about to learn the hidden secrets behind your credit score and what makes up your credit score…
Your payment history makes up the largest portion of your overall score making it a very important factor when calculating your FICO score. This portion is based on your past payment history with your creditors. Late payments, defaulted accounts, and all other NEGATIVE information on your credit report will significantly affect your score. Having less negative accounts and more paid-as-agreed accounts will result in a higher credit score.
The second largest percentage of your credit score focuses on the amount you owe on your individual accounts relative to the high credit limits or available credit of the accounts, making up 30% of your total score. It is important to understand how the percentage of high credit limit used can affect your credit score either positively or negatively. Using a high percentage of your available credit means you are almost maxed out. This can have a negative effect on your credit score as it can suggest that you are overextended making it more likely you will miss or make late payments. On the other hand, using a low percentage of your available credit can have a positive effect on your credit score. It is recommended that you stay below 30% of your high credit limits.
Accounting for 15% of your FICO score, the length of credit history looks at how long your credit accounts have been open and the length specific account types have been open. How long it has been since the last time you used certain credit accounts will also be considered. When considering the length of credit history, the age of your oldest account, the age of your youngest account and the average age of all your accounts will be used. The longer you have credit accounts the better your score will be. Your overall FICO score may still be high, depending on the other factors, but having a credit history is still very important. It is better to have an imperfect credit history than to have no credit history at all. As you maintain your current credit accounts and continue to add additional credit accounts your credit history will grow. Naturally this will help increase your overall FICO score.
While obtaining new credit can be helpful for your FICO score, opening too many new credit accounts can have a negative impact on your score. How much new credit you apply for makes up 10% of your FICO score. Each time you apply for new credit the creditor will request for your credit report or score. The amount of requests that are made within the last 12 months will be considered and having a lot of inquiries in a short period of time will impact your score. Be careful when opening new accounts. Opening new accounts too quickly not only can harm your credit history by lowering your average account age, it can cause you to be viewed as a greater risk to creditors.
Not only will the length of your credit history or the amount of new credit you have applied for be considered, the different types of credit accounts you have will also be considered. Making up another 10% of your overall score, the different types of credit accounts you have open will have an impact on your overall score. Whether the impact is positive or negative will be determined by the type of account and how many of the accounts you have open. Having an open mortgage, 3 credit cards, 1 auto loan, and a small amount of other open accounts, an example of a healthy mix of credits, will give you a higher score. However, having a lot of credit cards or several mortgages can lower your score. Any unhealthy account mixes lower your score.
So, to obtain the best credit score make sure your accounts are paid on time, avoid keeping high balances on your open accounts, keep a healthy mix of credit accounts open always and do not apply for a lot of new credit in a short period of time.
There has to be a limit to when creditors or collection agencies pursuits must stop right? Well there is under the Statute of Limitations.Statute of Limitations should not be confused with the credit reporting time limit although they are very important time limits that should be remembered. While the credit reporting time limit outlines the time limit a negative item can be included on your credit report, the Statute of Limitations outlines the time limit a creditor or collection agency can pursue you for the debt.
The time creditors and collection agencies can attempt to collect debt varies from state to state. In some states it can be 4 years while in others it can be as long as 10 years. The type of agreement you have made with your creditors or debt collectors, such as oral agreements or written agreements, can also affect the time limit.
Understanding the Statute of Limitations in the state you live in is very important. One of the many things the Statute of Limitation prevents is creditors and debt collectors from successfully suing you. Once the time limit expires creditors and debt collectors may no longer use courts as a way of forcing you to pay. Many consumers fall victim to this because they do not understand how it works.
The limitation does not prevent creditors and debt collectors from trying to suing you. They may file a lawsuit against you but if they do this after the provided time limit by the Statute of Limitations, the case will not be successful. If they continue to be persistent you may tell them to stop and they will be legally required to stop contacting you for the debt. It is important that you communicate this through a written letter and keep a copy of that letter.
Another common mistake many consumers fall into is restarting the Statute of Limitations time. Once the limitation has passed there is still a chance the time limit will be restarted. It can be restarted from new activities on the account such as making any kind of payments, agreeing to make payments or even something as simple as acknowledging the account. If the account is close or past the Statute of Limitations it is better to not do anything with the account to avoid a restart.
Although there are many things it can do, the Statute of Limitations does not remove the debt from your name. If the debt is legitimately yours, you still owe the debt. The Statute of Limitations just limits how long and what creditors and debt collectors can do to collect the debt. So it is important to know how long the Statute of Limitation is in the state you live to prevent you being tricked.
A charge-off is when a creditor writes-off your debt as a loss and no longer pursues it. Usually this will occur when you fail to make payments for 6 months. Next to bankruptcy, charge-offs are things you want to avoid at all costs. It can really hinder your chances for any future loans, especially if they are left unsettled. Charge-offs will remain on your credit report for 7 years from the day you first fail to make payment. Many are mistaken in thinking charge-off means they no longer owe the debt. The debt is still owed and can be legally collected, but the creditor has written it off as a loss and will no longer try and collect the debt. Paying off charge-offs will not necessarily mean they will be removed. Your credit report will be updated as paid. Although your charge-off still remains and is only updated, a paid charge-off is better than an unpaid charge-off. If you wish to remove charge-off from your report you must contact the original creditor. Depending on the negotiation and the policies of the creditor, the charge-off may be removed by making partial or full payment. Whatever the deal is between you and the creditor make sure you get everything in writing.
Public records, legal documents made viewable to the public, can also be present in your credit report. While some public records have no effect on your credit score, there are some that can have a severe effect your score. These include bankruptcy, tax liens and judgements. Having any of the three on your credit report can really lower your approval rate for loans. Public records will commonly stay on your report for 7 years. Some, such as bankruptcy, that can remain on your report for up to 10 years. Unpaid tax liens, however, can remain on your credit report indefinitely. Removing public records from your credit report can be a time consuming thing. If the public record that appears on your credit report is incorrect, filing a dispute is the simplest way of removing it from your report. Tax liens may be removed once you have paid off your tax debt and make a request to the revenue department. This will not guarantee its removal. As time passes, the public records will have less effect on your credit score.
There are two different types of bankruptcy that can appear on your credit report. The two different types vary from each in repayment of debts, handling of property and possessions, as well as how long they remain on your credit report. The first type of bankruptcy is Chapter 13 bankruptcy. Filing for Chapter 13 bankruptcy can allow you, by the court, to negotiate and create a plan to repay some of your debt. This will also allow you to keep your property. Once you have made a paid the creditor your debt will then be discharged. This does not, however, mean that it will be removed from your credit report. Chapter 13 bankruptcy will remain on your credit report for 7 years. The other type of bankruptcy is Chapter 7 bankruptcy. When this type of bankruptcy is filed for, you seek to wipe all your debts. Under Chapter 7 you may be required to sell your property and other valuable possessions to make partial payment for the debt. The remaining balance after that is done is then dismissed. If you do not own anything of value or any property, then you will not be required to make any payments. Chapter 7 bankruptcy will remain on your credit report for 10 years.
Late Payments may not seem like a big deal but it is the most common issue many people have. Apart from adding extra fees on top of your payment amount it can also affect your credit score and approvals for new credit. You do, however, have a grace period before late payments are reported to Credit Bureaus. For a late payment to be reported it must be 30 days late after the payment due date. If you make a late payment 29 days after the due date, your credit report should still show you are still current. This does not mean you should do so, always make your payments before the due date. If you do make a payment 30 days or more after the due date you will be reported to Credit Bureaus. Late payments will remain on your credit report for 7 years. Having late payments appear on your credit report can affect your chances of loan approvals as it can be seen as you being unreliable when making payments.
When the creditor decides charge-off your credit, they may also sell your credit to a collection agency that will then pursue you for payment. This will then become a collection account and may be reported as a separate account. Like any other negative item, collections can really affect your credit scores. Other ways it can affect you is if you have an auto loan debt lenders may repossess your car and sell it at auction to pay your debt. The rest of the debt owed will then be sold to a collection agency. Collections will remain on your credit report for 7 years from the date the creditor reported the late payment. It does not begin the day the creditor sold the debt to a collection agency. If you pay your debt, it will still continue to remain on your credit report but it will be updated as paid on your report. The only way to remove a Collections mark from your report is to wait it out. If, however, the Collections mark on your report is a mistake, a dispute with proper evidence can remove the mark. Regardless of whether you pay it off or not, Collections will still remain on your report for the full 7 years.
A Foreclosure occurs when you can no longer pay your mortgage loan. When you do not make your payments your mortgage company take this action as way of getting their money back. The process begins with Pre-Foreclosure, where you will receive a notice. The notice will contain information including how much you owe and by when you will need to pay. If you are able to pay the amount owed the process will end. If you are unable to make the payment the next step will be an auction. Your property will be put up for auction to pay for the amount you owe. The final step in the process if the property was not sold at auction is Real Estate Owned. This is where the mortgage company takes possession of your home. Like most negative items a foreclosure will remain on your credit report for 7 years. Overtime as you continue to look after your credit, foreclosures will have less of a negative effect.
The time a negative item will remain on your credit report will vary. Certain negative items will remain for 7 years, while some will remain for 10. However, there are some items that will remain on your credit report for more than 10 years if not indefinitely. Items such as charge-offs, late payments, collections and foreclosures will stay on your report for 7 years. Some public records such as judgements and chapter 13 bankruptcies will also remain for 7 years. Other public records such as chapter 7 bankruptcy will stay for 10 years. Tax liens, however, vary on whether paid of unpaid. Paid tax liens will remain for 7 years while unpaid can remain for up to 15 years if not indefinitely. Many negative items remain on your credit report for different times. Knowing how long they should remain on your report can help you improve your overall credit and your credit score. In some cases when negative items should drop off the report are still being reported.
In a world where technology is taking over, payment methods and managing your funds are no exceptions to that change. The Electronic Fund Transfer Act (EFTA) seeks to protect consumers as they handle their finances by electronic means. The use of any electronic devise such as an ATM, phones and computers all fall under the EFTA. Handling finances through electronic devices may make things a lot easier and it may be faster, however, it does not necessarily mean it will be correct 100% of the time. A very common issue consumers can face using electronic devices are errors. Luckily under the EFTA you have the right to challenge errors and have them fixed within 45 days but this must be reported within 60 days. Another common issue that can be face is losing or having your card stolen and in some cases identity theft. In times of losing your card, it being stolen or identity theft, money may be transferred or withdrawn without your permission. Under the Act you have 60 days to report unauthorized transactions and the sooner you report it the less you are liable for. Reporting within 2 days you will be liable for only $50 while within 3 to 60 days can be as much as $500. Failure to report an incident within 60 days can mean unlimited loss, or loss of everything in your accounts. An important part of the EFTA, when dealing with creditors or debt collectors, is you cannot be forced to repay your debts through electronic fund transactions. They may offer the option but another method must be given if refused.
The Fair Trade Commission Act, passed in 1914, allowed for an agency, Fair Trade Commission (FTC), to be created, protecting consumers from unfair business practices. It also takes on the role of enforcing laws such as the Fair Credit Reporting Act and the Fair Debt Collection Practices Act. Apart from seeking protecting consumers, the FTC also serves other purposes. One is maintaining competition between businesses in the marketplace. Another is seeking to advance performance by always improving itself to be more efficient and effective. In order to achieve these goals, the FTC has a few Bureaus that work under it including the Bureau of Consumer Protection. The Bureaus of Competition and Economics also fall under the FTC. All three work together under the FTC to achieve its aim.
The Credit Repair Organizations Act (CROA) was created to help prevent credit repair companies from participating in unfair business practices towards consumers. This Act also seeks to make sure that people who seek the aid of these credit repair companies are not deceived. To ensure that this does not happen, credit repair companies must follow certain requirements under the Act. These requirements are to make sure that credit repair companies are transparent and honest with the services they offer. Under the Act it is illegal to offer services they cannot fulfill. As they consult with customers they must be clear and honest with the services they will offer. It must also be explained to the customer that they are able to repair their own credit without the assistants of the company. The Act also prevents the practice of requiring upfront payment. It is illegal for a credit repair company to request payment, whether partial or in full, before any service is completed. Customers are only required to make payment once the service has been completed. A contract is also a requirement under CROA before a company can begin repairing your credit. The contract should outline the services the company will provide and roughly how long it will take to complete as well as the amount for the service. A very important thing to remember is the 3-business day cancellation period. Only after the 3-business days have expired can a company begin to work on your credit. Cancellation of a contract with the company is well within your rights and a cancellation fee cannot be charged if you decide to cancel within the 3 days.
The Fair Credit Reporting Act (FCRA) was created to ensure that information being reported by reporting agencies is done accurately, fairly and above all privately. The purpose of this Act is to protect consumers from reporting agencies that, intentionally or unintentionally, include false information in their credit report. The FCRA determines how information is collected, distributed, and used. Under the FCRA you have the right to access your information upon your request and you have provided appropriate identification. Once every 12 months your information will be provided upon your request free of charge. Requesting for information after this will then be charged for a fee. You may also have access to your credit score which will come with a small fee. Reporting agencies, following the FCRA, should be removing false, incomplete and unverifiable information from your report which also includes overdue negative items. However, this is not always the case so under the Act you have the right to dispute any incomplete, incorrect or overdue negative items on your report. If the dispute is won it must be removed and no longer included in your report. Credit reports contain very personal and important information, so the FCRA is very strict and particular in how information is used and to who it may be given to. Determined by the FCRA credit reports, or any information included in the report, are not to be given to anyone other than you, unless there is a valid need such as an evaluation for a loan or a job.
A common issue that many consumers face is billing errors. While some can be honest mistakes, such as calculation errors, others are far from accidental. Regardless of whether intentional or unintentional, billing errors can cause trouble so the Fair Credit Billing Act (FCBA) was created to protect and help consumers who face billing errors and unfair billing practices. The FCBA sets forth guidelines that help consumers as well as creditors handle billing errors when they occur. It also provides certain rights that consumers can exercise if they feel they have been incorrectly charged, and procedures creditors must follow when handling disputes about incorrect charges. A very common right you can exercise is the right to dispute incorrect charges or billing errors. However, what can be overlooked is the fact that the dispute must be made within the first 60 of time the bill was mailed. This is why it is important and advised to check your bill thoroughly before making any payments. If you dispute the incorrect charge after the first 60 days, the dispute may be honored but it is no longer a legally protected dispute. When you make a dispute, best done through mail, under the FCBA the bank or card issuer must reply within 30 days of receiving the notice of dispute that they have received your notice and an investigation into the error is underway. You also have the right to withhold payment for the amount that is being disputed. The bank or issuer of the card cannot seek payment and it cannot report the charge as being late to credit bureaus. If the investigation has been completed and you are unsatisfied with the results you have the right to challenge the investigation. This must be done within the first 10 days of receiving the final results of the investigation. A right you also have is the right to see the evidence that was used against your claim of a billing error. The FCBA protects consumers from the negative effects of billing errors. It allows consumers that right to challenge billing errors as well as protect them from further issues such as dealing with a late payment being reported to credit bureaus. Understanding how this Act works can protect you from the troubles of billing errors.
Credit Bureaus or Credit Report Agencies are organizations that seek to gather and distribute important information about creditworthiness of consumers. There are a number of credit bureaus but there are 3 that dominate the field of credit reporting and they are TransUnion, Equifax and Experian. They are typically the big 3 that creditors and lenders report to.
TransUnion was created in 1968 by the Union Tank Car Company which in the year following acquired the Credit Bureau of Cook County (CBCC). Acquiring CBCC gave them a big foot in the credit reporting business which they continued to improve on causing them to be one of the big 3 credit reporting agencies.
As TransUnion continued to grow they continued to evolve adding to the products and services they were able to offer consumers and businesses. One example that has helped consumers and businesses is CreditVision, launched in 2013. Offering more than the traditional credit score, it has added trended data. Trended data provided through CreditVision not only allows businesses to predict repayment and debt patterns, it also provided credit store data on consumers that improved their chances when seeking credit.
CreditVision with many other products and services that are provided by TransUnion for consumers and businesses are the reason TransUnion has remain in the position it is in for more than 40 years.
Equifax under its original name Retail Credit Company was established in 1899. It was not until 1975 its name was changed to what we know today as Equifax.
Through its earlier years the company experienced rapid growth having established offices all through USA and Canada and becoming one of the largest credit bureaus in USA by the 1960s. During those earlier years the Retail Credit Company mainly focused on insurance companies and making reports when customers would apply for insurance policies. They also focused on credit reporting but it was not their main focus.
Majority of its operations focused on business-to-business, providing businesses with consumer credit information and insurance reports. It provided to some businesses such as healthcare providers, insurance agencies, banks, finance companies and even government agencies. Such information would help businesses decide what products and services they can offer customers and on what terms. It was only by the year 1999 when Equifax started offering services such as credit fraud and identity theft prevention products.
Operating now for more than 100 years Equifax is the largest of the Big 3 handling more than 400 individual files.
Unlike TransUnion and Equifax, Experian is not an American based company. Its current headquarters is located in Dublin Ireland. With a colorful history having origins stemming from previous companies in England and the US, the company currently has a workforce of 17,000 employees operating in 37 countries assisting clients from around 80 different countries.
The company currently focuses on more than credit services such as decision analytics, marketing and consumer services. However, being one of the largest consumer credit reporting agencies, alongside TransUnion and Equifax, it is the largest operation of the company.
With the information the company collects on people and businesses, Experian offers services and products that help individuals and businesses. Products such as identity theft protection and credit monitoring are to help protect consumers and help them manage their finances. Business valuations and marketing services are examples of products and services provided for any kind of business whether beginning, small or a large business.