What Is Considered A Good Credit Score

Jul 12, 11:08 AM (ET)

By EILEEN AJ CONNELLY
NEW YORK (AP) – The credit scores of millions more Americans are sinking to new lows.

Figures provided by FICO Inc. show that 25.5 percent of consumers – nearly 43.4 million people – now have a credit score of 599 or below, marking them as poor risks for lenders. It’s unlikely they will be able to get credit cards, auto loans or mortgages under the tighter lending standards banks now use.

Because consumers relied so heavily on debt to fuel their spending in recent years, their restricted access to credit is one reason for the slow economic recovery.

“I don’t get paid for loan applications, I get paid for closings,” said Ritch Workman, a Melbourne, Fla., mortgage broker. “I have plenty of business, but I’m struggling to stay open.”

FICO’s latest analysis is based on consumer credit reports as of April. Its findings represent an increase of about 2.4 million people in the lowest credit score categories in the past two years. Before the Great Recession, scores on FICO’s 300-to-850 scale weren’t as volatile, said Andrew Jennings, chief research officer for FICO in Minneapolis. Historically, just 15 percent of the 170 million consumers with active credit accounts, or 25.5 million people, fell below 599, according to data posted on Myfico.com.

More are likely to join their ranks. It can take several months before payment missteps actually drive down a credit score. The Labor Department says about 26 million people are out of work or underemployed, and millions more face foreclosure, which alone can chop 150 points off an individual’s score. Once the damage is done, it could be years before this group can restore their scores, even if they had strong credit histories in the past.

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Always remember that credit cards are a trap! They may help you 5, 10, or 20 years, but they are designed for the majority of its users to fall into financial ruin at some point. The only way to avoid this is to reduce debt as quickly as possible and to only use them in an emergency.

However, it is ironic that the primary use of a credit card is often its worst use. When you are truly in a financial emergency, often credit cards make your situation worse! In the current credit climate, holding onto balances is not putting yourself on the best footing for the future.

Remember to only use credit for long-term, durable purchaes.  Do not use it for food! Buy food, do not borrow it! Borrow a stove, a dryer, or a bed. Credit cards lead to overspending so use it sparingly.

It seems too many rely too much on their credit cards to get them through the day. There are a lot of bad habits that credit cards and debit cards encourage that cost each of us a lot more than we realize. Sure, they may seem convenient, but you are surely paying for it.

To protect yourself from being exploited by the credit card issuers, there are some basic strategies you can follow. These 10 strategies can keep your credit card working for you, rather than the other way around.

1. Do Not Use Credit On Food.

One of the strangest things to happen in the last decade is the surge of people using credit to buy food. This could be food at the stadium, at the theater, or at the grocery store. What kind of society are we living in when people think getting a loan for food is considered a sign of financial independence?

It could be said, someone who has to borrow food, is only one step from being a beggar. What happens if you lose your credit cards or you reach your limits? Does that mean you don’t eat?

If you do this, you are in a dire financial emergency. You need to reduce your debt drastically because you are far too depedent on credit cards for basic survival. A credit card is NOT a basic survival item!

2. Do Not Overuse Credit On Luxuries.

Many who get credit cards look at it as a way to get toys and luxuries they really don’t need. While credit and luxuries go back as far as each has existed, financial ruin is always just around the corner for those who indulge in them too much.

While it is fine to use credit on a TV or a computer or a nice kitchen appliance, you want to stay away from trends, fads, and brand names. The last thing you want to do is end up paying for something long after it’s usefulness or value has disappeared.

3. Beware The Impulse Purchase!

One of the hardest things to do with a credit card is to delay gratification. Why wait for that new jacket, when your credit card can get it today? Why wait on that new flat screen when you can get it now? Why wait on that vacation trip when you have plenty of credit available to go next week?

In a society of instant gratification, a credit card can be deadly to your financial future. When you add the peer pressure that mocks or neglects sacrificing or saving, it becomes very easy to just make that impulse purchase. In fact, entire businesses exist on the credit card impulse purchase. Just look at the commercials for the chia pets, the home shopping network, and exercise equipment.

A single purchase a year is harmless. But, too often, it reflects a pattern of behavior that will lead to financial disaster.

4. Never, Ever Use Credit Card Checks.

Credit card companies continually use different tricks to get people to go into debt to them. If you understand how credit cards work, it is easy to see why they are always trying to get you into more debt than you can handle. But, one of the worst ways they do this is with the credit card check.

Basically, the credit card check offers less protection than either a check or a credit card purchase. They subject you to higher fees than either which costs you more. The credit card companies don’t warn you about their drawbacks in any way that compares with their promoted benefits.

All in all, using a credit card check is a bad deal for you. Avoid them if you can!

5. Always Know What’s On Your Credit Report.

If you are going to borrow from someone, it helps to know what information they are using to set the interest rate. You can find out specifically what information credit card companies are using in your credit report. When you use your credit report information, with your credit score, you are in a vastly better position to dictate the terms you expect from your credit card company.

If you really want to get fancy, you could try credit monitoring. If you are in serious financial trouble or plan on getting a lot more credit, you definitely want to look into this.

Remember, credit card companies have all the information and resources at their disposal. You are at a great disadvantage. To improve your access to credit, you need the best information. With your credit report, credit score, and credit monitoring, you have the leverage to get the best possible rates from the credit card companies.

6. Don’t Use Credit For Temporary Items.

The other side of credit is debt. So, whenever you use your credit card, a debt is created that you have to repay. That means you do not want to go into debt for things that don’t last.

It is common for people to use credit cards for concert tickets, gasoline, utility bills, or personal services (e.g. salons, valet, tips, dining). While this is a widespread practice, it is not very financially responsible.

Why?

It is because of the nature of debt. Debt can last a long time. The last thing you want to do is create a years-long obligation for a benefit that is only temporary. All it does is create a greater obligation in the future. You will have to pay not only for your future expenses, but those of today as well. That will lead to a reduced standard of living and greater sacrifices down the road.

This leads to…

7. Use Credit ONLY For Durable Items.

If you must go into debt, use it on things that will give you many years of use. A stove, deck, tools, computer, furniture, and sometimes clothes are good examples of when to use credit. This advantage can be further increased if using credit allows you to get these items at significant savings. This may completely eliminate the interest cost of using credit!

8. Do NOT Use Your Credit Card As A Gift Machine.

In the days of rewards programs, too many used credit cards as a way to get bonuses, rewards, and gifts from their credit card issuer. Debt is not a gameshow. It is serious business because of the consequences of failing to meet an obligation.

The credit card companies are in the business of getting you to use credit as recklessly as possible. If they can get you in the habit of overusing credit to get prizes, it creates a pattern of behavior that may be hard to break in the future, once the prizes are gone.

Do not let the credit card companies change the way you spend. Do not let rewards programs decide the card you choose. Your only concern should be the interest rate and the history of fees, charges, and penalties.

9. Do NOT Use Your Credit Card As A Check Replacement.

Checks have a very long and established place in banking. They are based on your available account balances and do not rely on debt the way credit cards do. While it is true that the banks have GROSSLY ABUSED checking practices, they still do not leave you as vulnerable to financial calamity as credit cards.

Checks are a substitute for cash. In other words, the cash is available, it is just not on you at the time. A credit card is a substitute for a fixed debt. If you replace your check purchases (cash) with credit cards (debt), you are creating debt where none existed before. Since debt carries interest, you could end up paying a much higher price than you ever would have with just a check.

Not only does this leave you vulnerable to a lifestyle of growing debt, but it could also make you MORE dependent on it! Don’t be surprised if it leads to a spending lifestyle that leaves you drowning in debt. The simple way to avoid this is to not use a credit card as a check replacement!

10. Do Not Use Your Credit Cards As A Cash Replacement.

This is probably THE WORST HABIT of credit card users. The nice thing about cash is you always know how much you have and how much you have spent. There is always a sense of responsibility not to overspend with cash, because once it’s gone… you can’t get anything more.

Credit cards are different since all too often, the available credit is far beyond typical daily expenses. This leads to a situation where it seems more convenient to use the credit card to pay for everything, rather than cash since you get 1 bill and it itemizes the expenses. While 1 bill seems convenient, it is actually a trap!

Cash gives you daily information and updates on your financial position. It tells you regularly whether you need to save more or whether you can spend more. It lets you know if it’s time to adjust your habits or whether you can be more indulgent. Cash provides you with an up-to-the-moment status of your financial position at all times.

Credit cards on the other hand hide all this information from you, under the guise of “convenience” or simplicity. This leaves you completely dependent on the credit card company for information about your daily spending habits. And, you only get this information once a month!

If you are using your credit cards to replace cash purchases, think carefully about the consequences of what you are doing. The price may be higher than you think!

You Need To Know.

There are so many ways credit card companies get you dependent, needy, and desperate for their services. Your only chance is to be informed about how they see you and what they are saying about you. That means you must know your credit score and what is on your credit report. If you really want to be diligent, you can try credit monitoring to get updates on any changes.

At the very least, if you follow these 10 suggestions, you will find your use of credit cards, far more effective and productive. It just may prove the difference between a future of financial ruin and one that is predictable and satisfying!

Many people with great credit, who can borrow like no tomorrow, and get all the advantages of favorable credit terms have no idea how credit cards really work. This is not unexpected, considering that the banks and financial institutions that issue credit cards deliberately mislead borrowers about what it is they do.

To clear up some of the more confusing aspects of how credit cards work, it makes sense to cover the 3 biggest myths about how they function. You will not find this information anywhere or at the very least it will be very difficult. So, don’t be surprised when you learn why these myths are just that, and not facts.

Myth 1: Credit Cards Lend To You.

Many believe that a credit card is like a magical plastic card that allows you to get whatever your heart desires with just one easy swipe. You take that Mastercard, or Visa, or American Express, or Discover and you get cars, clothes, exotic trips, luxury furniture, fancy food, or whatever else you want. While it looks like that on the surface, what is really happening?

What is a Credit Card?

A credit card is an unsecured loan. Each time you swipe that credit card, you are making a small unsecured loan on the promise of repayment. The problem is, the loan is with the credit card company, not with the merchant who is providing you with what you want. So, how does your loan get to the merchant?

When you get your loan from the credit card company, they immediately get a loan from the merchant. In other words, the credit is not begin with the credit card company, but begins with the merchant! Understand that credit card companies have nothing to lend! They are a middleman between you and the merchant and the credit card company takes a nice cut for this service.

You tell the credit card company you want to borrow food from the merchant. The credit card company already has an unlimited line of credit with the merchant. You use the credit card company’s line of credit to get the food from the merchant. The merchant sends a bill to the credit card company. The credit card company then sends you a statement, including the bill. You pay the statement. The credit card company takes a cut and pays the merchant.  

What Do They Have To Lose?

When you understand that the credit card company does not lend you anything, it should be clear to see that they never lose money… EVER! It doesn’t matter if you don’t pay a bill, if the account goes to collection, or if they have to write it off because of the statute of limitations. The credit card companies still never lose! What simply happens is the credit card company loses its profit from the transaction.

You may be wondering, if the merchant provided the service/product/item, who pays when a bill goes uncollected? The answer to this question is beyond the scope of this article, but the simple answer is everyone pays, EXCEPT the credit card company.

Myth 2: Credit Card Companies Have Money.

If you ever read a credit card agreement, bank literature, checking or savings account contracts, you may notice that they very rarely use the word money anywhere in them. That is because our financial system is a credit-based system, not a money-based system.

What is the difference?

When you use money, credit cards cannot exist. Or, at the very least, they will be much reduced than they are today. The expense of transporting money from location to location, merchant to merchant becomes cost prohibitive when you consider the trillions of transactions that occur every day by credit card.

Myth 3: Credit Cards Make Life More Convenient.

It is easy to go to the grocery store and pay for everything with just one swipe of a card, without having to write a check, or count out dollar bills and change. However, with credit cards come risks.

Too often people don’t check their receipts. Too often, people make impulse purchases or overpay or are outright defrauded because they assume the cashier or the screen or the teller added everything the way you expected. Too often, people are victimized by giving their credit card to a waiter, or using it on the internet.

Sometimes, convenience is not the goal when conducting your day-to-day business. Your goal may be to get the best price, the best deal, or to protect your identity or your safety. The draw of convenience has turned credit cards into very inconvenient experiences of debt, loss, and injury.

Credit Cards Rely On Trust.

The entire credit card phenomenon relies on a circle of trust between merchants, customers, borrowers, and lenders. The entire process relies on everyone trusting the credit card company to handle the transaction, prepare the statements, handle the payments, and settle the accounts. It makes everyone extremely dependent on them in these transactions.

For this reason, the credit card companies have the power to demand payments from the borrower and the merchant that may be difficult to resist. In other words, the credit card companies have you at their mercy! To combat this, you need information. You need to know your credit score. You also need to stay on top of your credit report. It is the only way to counter the tremendous advantage the credit card companies have over you.

Ahhh… the power of numbers. It reduces a person’s entire life to an easily quantifiable, easily measured, and easily compared value. It’s useful to determine your self worth, your social standing, your standard of lving, your ability to provide for your children, and your future success in life. If life were only so simple.

How did it come to this? Why are so many preoccupied with asking, “Is 659 a good credit score?” or “Will a 639 credit score hurt my chances at getting a job?” or “Can a 670 credit score get me an apartment?” It wasn’t always like this and it won’t be like this for very much longer. Yet too many just go along with it. Why?

Playing the Credit Card Game.

With credit cards everywhere, even at grocery stores and fast food places, the banks have infiltrated just about every aspect of our lives. There was a time when people would pay using a check or cash. If they had enough, they would make the purchase, If not, they would wait. This is the way things worked for the first 200+ years of the United States.

This all changed in the 1980s. Everyone began using credit. And, it spread, and spread, and spread. First, it was the department stores. The credit card was used for luxury. Then, there was the gas card. It was used for fuel. Then, there was the debit card. It was used for food. Slowly but surely, credit cards went from being a luxury to a necessity. That is not a good development for your personal finances.

Credit cards rely on interest, fees, penalties, and lots of people going into debt. That means the borrower (you and me) is obligated to essentially work for a credit card to repay their debt. It leads to overconsumption which drives up the price of everything. People become less disciplined in what they purchase leading to a tremendous amount of waste. Yet, this is exactly what the credit card companies want. It is how they make their profits.

Playing the Numbers Game.

The credit card companies have managed to infiltrate every aspect of our daily lives. This includes food, fuel, health care, education, and even where we live. To keep track of who are the best borrowers, who is the most lucrative, who is the most risky, the credit card companies use the credit reporting agencies.

In a world where everyone relies on debt to get through their day-to-day lives, the credit reporting agencies have a TREMENDOUS impact on our lives. No one elected them to this position. No borrower chose them to do this. It was all the work of the credit card companies and other lenders. Their goal was to reduce you to a simple number, to basically determine the type of life you get to have.

So, we have this preoccupation with numbers. Is 550 a bad credit score? Is 710 a good credit score? It’s getting to the point where no one asks why these numbers should have any meaning to us. Instead, we just chase after the highest score or obsess about getting a better score.

Understand one thing, credit is a zero-sum game. Where one person gains, another loses.

This Cannot Last.

Never in the history of this country have so many been dependent on debt to survive. It is unprecedented. This is because we have built so much of our lives around going into debt. Living a life of debt always leads to disaster, ultimately. It may be 5 years, it may be 10, it may be 20… but it always ends the same. You are financially ruined!

The only way to protect yourself is to use debt (i.e. credit) responsibly. It means improving your access compared to others. It means becoming informed and knowing that CREDIT CARD COMPANIES ARE NOT YOUR FRIEND!

This is a business. This is about profit for them. Get your credit score. It is absolutely important that you do this as soon as possible. It doesn’t matter how good (or bad) you think your credit score is. Get it in writing!

You need to monitor your credit score. Remember, today, credit means life. The more access to credit you have, the more access you have to the things you want and need! Since credit scores change all the time, you need to be sure what is being said about you, over a period of time.

Is Credit Here To Stay?

Quite simply, yes. However, your access to it is now determined by the magical credit score. As long as this continues, you need to know everything it says about you. The credit score may not last much longer, but it is relevant today. So, use it to your advantage instead of having it used against you!

As part of its plan to reduce the availability of credit after the real estate housing bubble of 2003-2007, Congress has been at work to give the IRS more control over how financial transactions are conducted in the United States.

Many are aware of the primary mandate of the new health care bill. However, most do not know of the other mandate included. It has a much greater impact on credit availability for the future.

Tax Code Changes.

1099 reporting has been changed. All it took was a few word changes to tax code section 6041. It ws slipped into the 2000-page health legislation, probably under the belief that by the time anyone learned of this, it would have already been signed.

Beginning in 2011, the changes require businesses to issue additional IRS Form 1099s every year. This will affect millions of businesses. It will generate hundreds of millions, if not billions, of additional documents that private business must send each year. It seems to be a costly requirement that will affect the ability of businesses to extend credit.

What Easy Credit Allowed.

Banks made credit easily available over the last decade. That created an environment where many businesses, individuals (like you and I), and governments had easy access to many products and services that were difficult to access previously.

You could get homes, cars, elective surgery, trips & vacations, home improvement, rental property, and much more than you could in previous decades. Businesses were able to expand using credit by buying inventory, improving their stores, and offering easy credit terms to customers. Governments used easy credit for roads, sewer, sidewalks, parks, schools, police and fire, and more.

Reducing Credit Step-by-Step.

Once the financial system collapsed in 2008, it became clear that credit needed to be drastically reduced for the banks and financial institutions to survive. This resulted in bailouts of not only private companies, but also semi-private ones like Fannie Mae and Freddie Mac. To give these lenders a chance to survive, the first step was to reduce credit by making fewer options available to individuals.

The second step was to reduce credit available from businesses. Whether it is the retail outlet giving you a store card or a car dealership offering easy credit terms or your doctor putting you on a payment plan for elective surgery, these sources of credit need to become less available if the banks are to survive.

To help reduce credit available from businesses, which compete with banks and financial institutions, the Federal government has made it more costly for businesses to offer anything of value without alerting the IRS.

The new legislation reduces competition by making private business credit more expensive compared to bank credit. An individual seeking credit has greater incentive to use a bank rather than going directly to a product seller, due to banks lower costs in handling IRS reporting requirements. Business credit will be outpriced by bank credit.

How Will The New Legislation Work?

Currently, businesses issue 1099s in a limited set of circumstances. For example, when a business pays an outside consultant, a 1099 is issued. With passage of the health care bill, this information reporting requirement is greatly expanded. These additional IRS requirements place a cost on doing business which impedes their ability to offer credit except to their largest and most stable customers, due to the cost of reporting.

Examples of New Reporting Requirements.

A 1099 must be filed for…

• “amounts in consideration for property” (Code Sec. 6041(a) as amended by 2010 Health Care Act §9006(b)(1)) and
• “gross proceeds” (Code Sec. 6041(a) as amended by 2010 Health Care Act §9006(b)(2))

if the $600 aggregate payment threshold is met in a tax year for any one payee. After 2011, “payments” includes gross proceeds paid in consideration for property or services.

Increased Cost from New Requirements.

A 1099 will have to be issued whenever a business does more than $600 of business with any entity in a year. Given this requirement, business credit will become much more expensive in the upcoming years.

How Do You Prepare?

Take advantage of cheaper bank credit and available business credit, while prices are still low. The time is coming when both will become much more expensive and probably for years to come. Business credit will be more expensive due to reporting costs from the new legislation. Bank credit will be more expensive due to reduced competition from business credit.

If you take advantage of credit (whether bank or business) today, be sure your credit reports are in good shape. You may need to get a credit report or credit monitoring to make sure you still have access to credit at the lowest possible rates.

Use credit for long-term, durable, high-demand, and high-quality purchases. DO NOT use credit for trendy, brand-name, high-maintenance, impulse items. Using your existing access to credit the correct way will pay huge benefits when credit becomes expensive and hard to get,

In today’s financial environment, the national banks are in a dire state. If the bailouts of 2008-2009, the sudden rise in unemployment, and the collapse of GM and Chrysler didn’t make that clear, the upcoming tight credit will.

Current Credit Conditions.

Actually, credit is already tight. For many businesses, homeowners, and credit card customers, the national banks have made it a point to lower credit lines, increase minimum payments, and even cancel accounts. This is all to bring their balance sheets in line with the reality of the current credit conditions.

This will all take time. There were a lot of loans to a lot businesses, people, and even governments out there and some will never be repaid. A lot of this was facilitated by credit reporting agencies. It was Standard & Poor’s, Moody’s, and Fitch’s ratings that gave too many businesses and governments top-notch credit ratings. It was Experian, Equifax, and TransUnion that did the same for the homeowner or the credit card customer.

The standard for business and government was the bond rating. For you and I, it is the credit score. Just as bond ratings must adjust to the reality of the current credit market, so too must the credit score.

Is A Credit Score All Important?

Too many consider a credit score as a standard of their self-worth and standing in the community. While the credit reporting agencies and the banks certainly encourage this kind of thinking, it is merely a means to go into debt. It is not a measure of your ability to repay debt or even to have access to debt in the future. It is a snapshot, of a moment in time.

A credit score is not a measure of character. It does not consider your friends, family, roots in the community, nor your contributions to your neighborhood. The credit score reflects credit conditions in the country as a whole, and that is entirely beyond your control.

With national banks and credit reporting agencies, you are in a situation where local considerations are unimportant to the lending decision. All that matters is what happens in New York City, on Wall Street. Or, if the Federal Reserve decides to change the credit market this week.

For instance, you could have a credit score that would get you a mortgage one month. If the Federal Reserve decides to change lending requirements or the market for loans dries up on Wall Street, you may not get a mortgage. This could happen despite nothing having changed on your application or in your local community!

Local Credit and National Credit.

To limit the effects of being entirely dependent on a good credit score, it is best to develop relationships with creditors in your community. Often, you may find they do not report to the credit reporting agencies. Under these circumstances, it is possible that credit scores are not the deciding factor for extending you credit or getting a loan. Let’s call this local credit.

On the other hand, banks, finance companies, mortgage companies that depend on Wall Street to buy their loans, notes, and accounts rely almost exclusively on the credit scores provided by FICO and the credit reporting agencies. You will need to stay vigilant about disputing, challenging, and validating anything they report on you. Since society depends on credit from the national corporations to function. Let’s call this national credit.

Your Place In Society.

In this modern, financial society, many believe your credibility is determined by your ability to borrow, your access to credit, which is really how much you can go into debt. If you want to maintain this access, don’t limit yourself to just national credit. Local credit becomes useful when it becomes difficult to borrow from national banks, mortgage companies, and national corporations.

For a more secure and stable financial future, don’t neglect all your credit options, which includes using local credit. Develop relationships with those who can extend that credit, so you won’t have to depend solely on your credit score to determine your worth in society.

There are a number of areas in your credit report that you need to understand if you want to improve you credit score. Each section is covered to provide an overview of the areas most important in determining your credit score and getting you access to credit. 

Personal information.

The easiest and first thing to correct on your credit report is dealing with old addresses and name variations. These two items serve no purpose on your credit report other than to hurt your credit profile. If a creditor needs this information, you can supply it when you need or must maintain credit.

To remove these items, call or write the CRA. Ask to have them removed, since they are “not accurate”. (Sample walkthrough for writing a credit report dispute letter.)

Public Records.

This is a tricky and persistent issue for your credit report. This information often passes through many people between the courthouse and the credit reporting agency. This “public” information is very prone to errors due to all the people using, recording, and transmitting it.

Public records can be disputed just like anything else on your credit report. Be very careful when sending documentation to “correct” your credit report in this case. You may inadvertently verify information. This makes dispute nearly impossible later.

Credit Information.

This is the area where negative credit items appear. This section outlines your credit worthiness, with regard to your history of handling past obligations. In some sense, this is the heart of the credit report.

Credit Items.

While the amount of credit you have, your existing loans, and inquiries make a difference, it is your actual reported credit behavior that is key to any credit decision.

• Date of Last Activity.

The date used to start the 7-year reporting clock.

• Date Last Reported.

The last date the creditor supplied an update to the credit reporting agency (CRA). This does not affect the reporting period or statute-of-limitations (SOL).

• Account Type: R - ”revolving” and I – “installment”

0 – Too new to rate

1 – Pays account as agreed

2 – No more than two payments past due

3 – No more than three payments past due

4 – No more than four payments past due

5 – Payments are 120 days or more past due

7 – Regular payments made under W.E.P (wage earner plan)

8 – Repossession

9 – Bad Debt; moved to collections; skip

Limit/Original Amount.

With installment loans, this is the original loan amount.
With revolving accounts, it is your credit limit.

These are used to determine your credit utilization rate. If your credit report shows an inaccurate low rate, it negatively affects your score.

Balance.

The total amount due as of the date reported.

Open/Closed.

This sections shows accounts as open, active, availaible for use, or
closed and no longer available.

Closed by Consumer means the account was closed at your request. It does not affect your credit score.

Closed By Credit Grantor shows the account as closed by the creditor, and often involuntarily. This is almost never good for your credit score.

Inquiries.

These are listed by date. It lists who has pulled your credit report.

Specific reasons must be met before anyone can see your report. “Permissable Purpose” are the legal requirements necessary to do so. A credit inquiry made without a ”permissable Purpose” to do so, is a violation of Federal Law. The violator is subject to fines of $1,000, and more in certain states.

Credit Report Item Life.

Bankruptcies stay on your credit report for 10 years. It begins from the date it is discharged.

Other negative items stay a maximum of 7 years from the date of first delinquency.

Positive items can appear indefinitely, and at a minimum of 10 years.

Credit inquiries appear for 2 years. Those in the most recent 6 month period are usually given the greatest consideration.

Getting A Credit Score.

When you get a credit report, you often get a credit score too. Sometimes it is free and sometimes it is available for an extra charge.

2 Types of Scores.

The FICO score (Fair-Isaac) is sometimes called the “Beacon” score. It is determined by the Fair Isaac Company using the data from your credit report.

Each credit reporting agency (CRA) has their own “score” calculated from their own credit report information. They vary in accuracy, and should never be used as an accurate indicator of your credit score. Only the FICO score is used by potential creditors. Do not be surprised if these CRA-specific scores differ from your FICO score by 100 points or more.

Equifax uses the Beacon score and should provide an accurate representation of your current credit profile, as seen by potential creditors. For Experian, they offer Fico scores through www.myfico.com.

This is a (very) basic introduction. You have more rights and options than listed here. However, at least this will give you a start.

Where To Begin?

Before you do anything, you must know where you are. This will let you know what has to be done.

Get current copies of all 3 of your credit reports. This report information changes, sometimes frequently. These changes mean you MUST get the most current copies.

Each Credit Reporting Agency (CRA) has its own, seperate database. So, expect the information on each report to be different. That is why you need all 3 reports.

Get Your Credit Report.

Being denied credit, insurance or employment causes you to get a “notice of adverse action”. It tells you how to get a free copy of the credit report used in the decision. This only gets you 1 free report, not the other two.

Contact the CRAs. You can call them, write a letter, or visit their websites.

Some states give you a free report occasionally. Others have a small fee, maybe around $8.00. Check your state to learn their policies.

Credit Monitoring.

Sign-up for a credit monitoring service. Several give you a free trial. It is important to find out how many “new” reports you can pull when you join. Some allow daily reports. Others limit you to 4 a year.

MyFICO is a very popular option. The advantage of Equifax’s Credit Watch is they are a CRA that includes FICO. Or, you could go with Credit.com to see if it works better for you.

Married.

The credit reporting agencies still keep your reports seperate, married or not. “Joint” accounts may be common to both reports, or your spouses’ name may be on your report. But, your report is only used to judge your credit. An item change on your credit report does not affect your spouse.

You Have Your Report. What Next?

It is time to understand what is being reported!

Your credit report has several sections.

• Personal Information.

Shows your name, address, date of birth, employer, Social Security number, spouses’ name. Variations of each may appear, with previous addresses and names.
This information is received from creditors, and yourself when you submit a credit application.

• Public Records.

Bankrupcies, garnishments, liens, judgments, felony convictions may all appear. Any public court record is fair game.

• Credit history

Loans, credit cards, leases, mortgages, collection accounts appear. This includes your payment history and details about each account.

• Inquiries.

Everyone who has “pulled” your report. You may see two sections, “hard” and “soft”.

“Hard” inquiries are applications for credit, or a lender looking at your report. These inquiries are what lenders see.
Only you see “soft” inquiries. Commonly, this is from you pulling your own report, or inquiries from people trying to sell you stuff.

KEEPING A CLEAN credit record is more important than ever. Unfortunately, maintaining a credit file that is free from fraud, identity theft, and errors can almost feel like mission:impossible.

Credit Monitoring.

Credit-monitoring services exist to provide timely information on your credit file and, in some cases, protect you from identity theft. For a monthly fee, credit reporting agencies, banks, and other 3rd-party companies give you unlimited access to your credit report and score. They e-mail notifications if any significant changes occur (e.g. late payment or new accounts opened in your name). Some even claim to reimburse you for losses resulting from identity theft.

At first glance, credit monitoring services seem like a guaranteed way to safeguard your credit health. But, some consumer advocates warn these services may be too expensive.

The Credit Bureau Response.

Experian, Equifax, and TransUnion claim their services help those who need to closely monitor their credit, don’t have the time, or are worried about identity theft. They claim their services can save you time and energy when getting credit, applying for a job, or getting insurance. Given the benefits, they claim their fees are well worth it.

Is It Worth The Cost?

While a few subscribers benefit, overwhelmingly the services are a waste of cash, according to some. 4 reasons why some claim it is not worth the cost are…

• poor fraud protection,
• changing credit score criteria,
• loophole-laden ID theft insurance, and
• free self-monitoring.

While each of these seems like a genuine reason to avoid credit monitoring, is it enough to make it a waste of time?

Make It Count.

While credit monitoring is often oversold as a cure-all for your credit worries, there are situations where it really is useful. If you expect credit monitoring to do everything for you, don’t be surprised if you are disappointed with the results. However, if you look at it practically and with a specific purpose in mind, credit monitoring can be very effective.

The best way to use credit monitoring is if you are in the process of cleaning your credit file. For many (if not most), there are numerous inaccuracies in your credit file with each of the 3 credit reporting agencies. Each will give you a free credit report, every 12 months. But, you will need many more than that to repair to make sure your credit file is clean.

How To Use Credit Monitoring.

When you want to improve your access to credit, you need to establish where your credit report is, today. This is done by getting a free credit report from each of the 3 credit reporting agencies. Examine them and find the incorrect information.

Bad Information.

Once you do that. You need to contact each of the credit reporting agencies (Equifax, Experian, and TransUnion) and tell them to remove any information that does not belong. You then must wait until they verify that the improper information has been removed. At that point, you will need another set of credit reports to confirm the information is correct. These should be provided free of charge.

Once you have done the work to clean your credit file, you will need updates to be sure no new bad information is added. This is where credit monitoring comes in handy. You can monitor if any new improper information is placed in your credit file. It sets the foundation for you to continue with the next step in protecting your credit report, disputing debts.

Dispute Credit Items.

With the bad information gone, you can now go after the bad debts, chargeoffs, and unknown items that appear in your credit file. As you dispute and remove each item, you will need to confirm it with more checks of your credit file.

Basically, you will be living in your credit file while you do all this work. This is where credit monitoring really excels. You use the initial free credit reports to measure where you started, the free credit reports you get from successfully removed incorrect information, and the credit monitoring to confirm that disputed items are no longer in your credit file.

It Depends On How You Use It.

While credit monitoring can be a waste, it definitely has its benefits if you are trying to clean your credit report. The fee, while excessive for just identity theft protection, is well worth it when you want to improve your access to credit.

Your Best Bet.

The most-used credit monitoring services for do-it-yourself credit repair are…

MyFICO
Equifax Credit Watch

Another is…
Credit.com Bureau Monitoring

Try them to see which works best for you.

We all want to return to the good graces of the “credit gods” to receive their credit abundance. I know you want to buy that house, that new car, or go on that expensive trip to some far, distant, and exotic land. But, let me tell you, rushing the credit repair process can do more harm than good, if you’re not careful.

Dispute Accounts.

If you decide to dispute an account, it does carry risks, potentially a HUGE one!!

Your credit score has risen since you have cleared the bad information and removed the invalid addresses. When you next decide to remove old accounts, it may send an alert to collection agencies. They know your rising credit score is valuable to you. They will use it against you to extract payment for old debts on old accounts, that you may not have known existed or forgotten all about!

Statue of Limitations.

The statute of limitations is a legal concept that relates to whether you can be held responsible, in a court of law, for something. It provides a maximum limit of time you can be taken to court for something you did.

For example, you have a debt with Bank A for $1000. The bank is unable to collect from you. For the next 7 years, you can be held liable for that debt, in a court of law. After that time, you can no longer be held responsible for it, under the law. In other words, the legal statute, has a limitation on the time allowed to collect a debt from you.

Alerting the Collection Agency.

As your credit score increases, you will be more likely to protect it. High credit scores get the attention of creditors, as well as collection agencies. They monitor your credit report, just as you can with tools like FICO Score Watch and Credit Watch.

If you alert a collection agency, do you have the funds to settle an old account (preferably paid in full)? If not, they may take you to court. This is assuming your account is within the statute of limitations.

If you dispute the collection agency’s ability to collect, are you ready to sue?? Are you ready to defend yourself if sued??

Court.

Court actions involve massive amounts of time. They are expensive. It doesn’t matter if you have an attorney or file pro-se. It can take years to master the law, and that is just for this one area! You are talking about a lot of time…and aggravation…to argue your case in court.

Other Things To Consider.

Will you hire an attorney? That makes things more expensive than doing it on your own. You’ll pay for their “expertise” and still have loads of hassles!

Are you prepared if you LOSE?? Are you ready to face a judgment that could have been avoided?? Are you willing to Risk a garnishment? Are you willing to risk property siezure to pay a court judgment??

Avoiding the Collection Agnecies.

You may decide to just “lay low” to avoid the collection agency. However, you may still be sued. Or, they may drag you through “mandatory arbitration” which is sometimes called the kangaroo court. It really depends on the collection agency and how aggressive they are.

The Worst Offenders.

For creditors like CapitalOne, the vicious MBNA, and Citibank, it is not uncommon to see a lawsuit and/or arbitration. Take the time early after default to learn to defend yourself.

Due Diligence.

When dealing with collection agencies, check local court filings for your area to see how often they DO sue. Usually, you should hide! If they find you anyway, try a “countersuit” (worst-case scenario). Use all the “sweet” violations you “harvest” from their pathetic attempts to collect.

Sometimes, the debt can be offset, if you countersue. Just maybe, you can have something left over!! Or,sue the collection agency yourself. Only do this if they really screw-up. That way, if you are sued, you will not likely be left paying expenses “out-of-pocket” for long.

Use Your Time Well!

The statute of limitations takes a “long time” to pass. So, use it and learn how not to get in trouble again. Face the law and court actions when necessary. Save by getting in the habit of paying with cash.

When it comes to credit repair, patience is not just a “virtue”, it is essential!!