Two things are very important when building credit.  First, you need to have a high limit and a low balance.  The more you have of this combination, the better your score.  Second, you need to make your payments on time.  These two things will build a credit score in no time. 

 

For example, we worked with a lady recently and recommended that she speak with a lender.  She had a credit score in the low 500s and needed to boost it before she could buy the kind of home that she wanted.  Her credit report showed that she had not paid a few things.  She actually had paid these things, but the creditor did not update the report to show that she had paid in full.  So, her loan officer made two corrections in her report showing that she had paid what she in fact had.  Doing this changed her ratio of credit limit to amount owed (in other words, her true balance).  Correcting this amount owed increased her credit score more than 100 points in about a week.  That’s about as quick of a change in credit score that you can hope for!

 

Another way to improve credit is to open a line of credit but only borrowing a small amount.  And, be sure to pay it off.  One way to do this is to get a prepaid credit card and use it to get gas, groceries, etc. – whatever you’re going to buy anyway on a regular basis.  If you do this for a year, it will show that you’ve paid as agreed.  The longer you do that, the better your score.  The prepayment on the credit card is actually a deposit. So, you’ll get that money back at the end and have a true line of credit.

 

People who have had troubled credit in the past (bankruptcies, foreclosures) get scared of credit.  So, they don’t actively pursue credit or make big efforts to rebuild their credit profile.  It’s important to talk with your home loan officer before you buy.  He or she can help you build credit and get the house you really want.   

If you’re confronted with this kind of situation, what can you do?  One thing to consider is consolidate your credit card debts.  Debt consolidation or consolidating all your credit card debt into a single debt will help you get out of bad credit more easily.  Let’s discuss some key points on credit card debt consolidation:

Lower your interest rate.  You should consider debt consolidation to cut back on your interest rates.  If you own several credit cards and each card charges you with high interest, think of how much additional costs you are charged with. 

Through debt consolidation, you’ll only be paying a single interest for all your debts, thus cutting back a considerable amount from your charges.  However, you don’t have to include in your debt consolidation the credit cards with low interest rate.  Just choose the ones with high interest rate.

Pay only once each month.  An advantage of debt consolidation is that you only pay one creditor each month.  No need to be confused with different due dates of payment or submit different payments to different creditors.  This is a great convenience on your part in managing your bills.  This will also ensure that you will not be missing any payment due date because you forgot or you got confused.

Find a legitimate debt consolidation company.  Just like in finding the right credit card company, you also need to do your homework when looking for a debt consolidation company.  Always compare rates before choosing the one with the best deals.  Understand the terms and conditions that the company imposes.  Check out the debt consolidation agency’s background and reputation.

Understand your debts.  Before submitting an application on your chosen debt consolidation company, see to it that you are aware of your accounts.  Obtain a copy of your credit report so you can study exactly how much you owe to your creditors.  It will also help you in dealing with your consolidation company.

Understand that it is a secured loan.  Don’t forget that a debt consolidation loan is a secured debt so you have to be prepared and committed on making your payments.  Debt consolidation will only work if you religiously submit your payments.  Otherwise, you’ll only find yourself in another bad credit situation.

Work out a plan.  Work out a plan on how you’ll be able to pay off your debts.  It would mean cutting back on expenses, putting a hold on the use of your credit cards and finding a second job.  Have the determination and the will to get out of your debts.

We often hear that a person’s credit report is very important because lenders, employers and even landowners check this document to measure one’s credibility and financial capability. But what really is inside your credit report? Do you really understand how it works? Let’s take a closer look on what your credit report is made of:

Inside Your Credit Report

Credit reporting agencies collect information from your creditors, debt collection agencies or from the court and compile all these information in one report. Everything listed here are considered to be accurate unless the owner of the credit report files a dispute about certain details in his report. However, if the information is correct –whether positive or derogatory – it will stay on your credit report for up to seven years.

Information that is contained in a credit report include a person’s full name, Social Security Number, date of birth, past and present home addresses, phone numbers, Driver’s license number, employment history and other personal details. If you do find any error, you must notify the credit reporting bureaus immediately and request that these details be corrected.

Liens, wages, foreclosures, bankruptcies and other public records are included in a credit report. It also contains a comprehensive summary of a person’s accounts from all his creditors or lenders regardless of what type of debt it is. It presents charges, penalties, date of payments, amount of debt, credit limit and everything that has to do with a person’s credit.

Credit Report and Inquiries

Each time a creditor or a company makes an inquiry about your report is also included. This is why consumers are warned against submitting too many applications from various lenders and banks all at the same time. Too many inquiries in your credit report can damage your score especially if you have been rejected by a lender.

However, personal inquiries are not regarded as negative and will not affect your credit score. In fact, it is recommended to inquire about your personal credit report at least twice a year so that you can be updated with the status of your credit history and score.

The three major credit bureaus are Experian, Equifax and TransUnion. Each of these agency works independently in reporting a person’s credit history. Thus, if you have any dispute about your credit report, see to it that you advise all three of these credit bureaus so that corrections can be made in your report accordingly.

The Fair Credit Reporting Act protects all consumers from fraud and ID theft by ordering all credit bureaus to do the necessary corrections immediately if a person claims a dispute in his credit report.

If you own a business, you can also apply for a separate credit history for your company from two major business credit trackers in the US- Dun and Bradstreet and Experian. The credit score for a business account is known as Paydex and this is the one used by lenders and financial providers in approving business loans.

It is important that you periodically get and review your free annual report to make sure that all information reported in it is accurate. Inaccurate information and information that is not yours will result in a less than perfect picture of your credit and could pull down your credit score.

How you’ve managed your credit accounts. This is probably the most important section of your credit report. This section contains information about each of your credit accounts and the current account balance, type of account, payment status, minimum amount due per month, whether you’ve ever been delayed in making payments, and whether your account has been sent to a collection agency.

Information from public records. This includes information about bankruptcy, tax liens placed on your assets, foreclosure or repossession of your assets. If you’ve ever been arrested or indicted, that will show up in this section. This section also includes information on money judgments — if you’ve ever been ordered by a court to pay someone as a result of a lawsuit.

Inquiries into your credit report. Any inquiries from creditors, employers, insurance companies, or other companies that requested your credit report will appear here. The information in this section lists inquiries for your credit report that were made in the past two years. Credit inquiries – also known as voluntary or hard inquiries – will be seen by anybody who requests for your credit report. Employment-related inquiries, those that appear as a result of your subscription to a credit monitoring service, your requests for your own free annual credit report, and those from your existing creditors will be seen only by you.

Your identifying information. This is where your name, address, Social Security number, and employment history will appear. Any names that you have used in the past – an alias, your maiden name, or your name with a Jr., Sr., or II or III at the end are included here. Addresses will include your current and any past addresses that you have lived in. In addition, the type of residence you live in – whether it’s a single or multi-family home – may also be listed, depending on which credit reporting agency generated your report. If you’re married, information about your spouse will be listed here, especially if he/she shares a credit account with you or is an authorized user of your individual account. Your employment information will include the names of your current and past employers, as well as your salary information for each job.

The importance of your annual report is such that this report could be the single deciding factor for whether you’ll be approved for a loan, especially when you need it most. Don’t wait till the last minute before reviewing and cleaning up your credit report. You can read more about how to obtain your annual credit report for free on our site, where you’ll also find information about how to raise your credit score and rebuild your credit picture.

It is common for lenders to request credit reports from the three main credit reference agencies, Experian, Equifax and TransUnion and use the mean score (average). Credit reference agencies are not responsible for assessing the information they hold, nor do they maintain a ‘credit blacklist’. It’s the job of the lender to assess the information and decide whether to lend or not. Although different lenders might work from the same credit report their scoring systems may be different, so you could be refused credit by one company and accepted by another.

The files that credit reference agencies maintain on all of us contain a variety of financial information; for example, a missed payment on your credit card will be visible on your credit report for 3 years, while a CCJ will be visible for six years. They also maintain details of bankruptcies, IVAs and information from the electoral roll.

However, that these credit reports can contain account histories that are incorrect, outdated and incomplete. Credit reference agencies do not verify information they receive from your creditors, the simply log it. Believe it or not, it is your responsibility to ensure your credit report is accurate and up to date.

An adverse credit rating can be expensive. Most loans and around 25% of credit cards charge a higher interest rate if you’re credit rating isn’t exactly perfect. So, it’s in your interest to ensure the details on your files are up to date and correct.

What information is used to calculate your credit score?

Credit scores are calculated on historical data:

Settlement history Total outstanding debt Length of credit history Type of credit (secured or unsecured) Frequency of borrowing.

N.B. Items 1 and 2 count towards 65% of your overall credit score. So, based on historical data, your credit score provides the lender with a reliable indicator as to whether a loan should be granted or refused.

Have you been Refused Credit for no apparent reason?

If you have been refused credit it is most likely the result of an adverse credit report. Many credit reports contain inaccurate information which will affect your ability to borrow in the future and, in some cases, your ability to gain employment especially if you work in the financial sector.

A common reason for being refused credit is that you simply can’t be found on the local electoral role. If you haven’t registered yet you should correct this as soon as possible.

How do you check your credit score?

The lender you approached has no legal responsibility to tell you why you were refused a loan or supply any information regarding your credit score. However, the lender is obliged to give you the name, address and telephone number of the credit reference agency (or agencies) they used. You have 60 days after receiving the denial notice to request a free copy of the report. Gaining access to this report should tell you everything you need to know and catch any instances of identity theft.

How do you request a report?

To request a credit report write to one of the credit reference agencies giving your full name, previous name if married, address and how long you have resided at that address. Also include a copy of a recent utility bill. Also include any address where you have lived over the last 6 years.

Equifax
Credit File Advice Centre
PO Box 1140
Bradford
BD1 5US
http://www.equifax.com/

Experion
Consumer Help Service
PO Box 8000
NOTTINGHAM
NG1 5GX
http://www.experian.com/

TransUnion
P.O. Box 6790
Fullerton, CA 92834
http://www.transunion.com/

It’s likely that each credit agency holds slightly different information depending on which agency your creditors report chose to. For this reason it is important that you check your credit report with all three agencies.

Once You Receive the Report

Check the credit report carefully and contact the credit reference agency immediately if you spot any errors in your personal information requesting they rectify the inaccuracies.

What if the credit report is inaccurate?

Although Experion and Equifax both offer an online process to challenging any incorrect information on your credit report it is quicker to write to these companies by registered delivery. Spend time putting everything together before you contact any credit reference agency.

Make a copy of your most recent credit report and highlight any missing, out of date or incorrect information. For identification purposes include at least 3 forms of identification like a recent utility bill in your name at your current address, a recent bank statement, a copy of your driver’s license or passport or your social security number. Carefully piece together proof of any errors in the report and include supporting or corroborative documentation. Things like checks or receipts for cash and credit card statements that show when payments were made. In case of identity theft, include any police reports you have. If there is related court judgments or bankruptcy include all documents or discharge papers. Attach a cover letter stating that you are disputing your credit report, clearly state the reasons why and reference your supporting documents as required. Be meticulous. Do not send original documents make copies of everything. Post it registered delivery so that you have a delivery receipt.

What happens now?

The credit reference agency will commence investigating the items in question within 30 days. They will contact any creditor who has supplied credit information you claim to be inaccurate. The creditor is then required by law to investigate your complaint and report its findings. If the disputed information turns out to be inaccurate, the creditor must notify all nationwide credit reference agencies, so they all can correct the information in your file. During this process log every phone conversation and keep copies of every letter or e-mail that you send or receive.

If your challenge is successful, the credit reference agency will send you written confirmation and a free copy of your updated report.