You can find out what is in your credit report. Under a recent (2005) law, you can get a free copy of your report from each of the big three credit bureaus once a year. (See Chapter One: Watch Your Credit Report for details.) Banks and other lending institutions use the information in your credit report to decide whether or not to make you a loan and what interest rate to charge you so having a good credit report is important. So, you ask, what exactly is in my credit report?
The answer is: a complete picture of your finances.Your name, current address and phone number and marital status are there of course. The name of your current employer, your current income and your employment history is there as well.
All of your debts and your payment history, any loans you have defaulted on, the total of all debt on credit cards, bank loans and mortgages are included. If you have had any judgments against you in court, those will be there.
Lending institutions view this information in different ways. Some place more importance on one thing… some on another.They all combine the information on your credit report with the information on your loan application and come up with a credit score number (also known as FICO score). If that number is below what they have set as acceptable they will do one of two things:
(1) Deny your Loan Application, or (2) Make the loan at a higher interest rate. In other words, a low credit score can cost you many thousands of dollars over the course of a mortgage loan or auto loan because your interest rate will be higher than the rate charged to someone with a higher credit score.
Various online services will help monitor your credit score and provide tools to help improve it. I recommend the popular Equifax Score Watch service. The same company also offers a credit watch service that monitors all three credit bureaus.
When shopping around for credit do all the research about the lending institutions that you are considering as you can.Every time you make an application for a loan, whether you obtain the loan or not, that information will be included in your credit report. If there are too many applications for loans in your report, lending institutions see that as a red flag.
You can find lots of misinformation about money and credit and especially credit cards. Misinformation is misfortune, so arm yourself with the truth before you tackle the credit card demons!
Myth #1: “It’s all my fault I got into this credit card mess!”Myth #2: “Credit Cards are what got me into debt.”
Myth #3: “My credit rating is destroyed forever and there is nothing I can do about it.”
The truth: If you have a job and are willing to work at it, you can get your credit under control and your credit rating restored. Rebuilding your credit requires that you do three things; pay your bills on time, look for better options and learn about money and credit.
Myth #4: “It’s fine to give my credit card number for identification as long as I don’t authorize a charge.”The truth: NEVER give your credit card number for identification purposes. For that matter, you need to guard all of your personal information like a ferocious tiger.
Unless you initiate the phone call, do not give your name, address, phone number, social security number, credit card number or driver’s license number to anybody. All of this information can cause your identity to be stolen or worse.
Myth #5: “If I pay off a debt or cut up a credit card, this information is removed from my credit report.”The truth: When you pay off a past due debt it actually restarts the time period that it can be reported in your credit history. Cutting up a credit card does not close the account. You must call the credit card bank to close an account under all circumstances.
Urban legends are just a fact of computer life. There are the old ones that have been around for years and new ones that pop up everyday. It’s the modern version of gossiping over the back yard fence and most of them are false but harmless. When it comes to the urban legends about credit they really, however, they are harmful.
“You can pick a lock with a credit card” may be true but it’s a bad idea… you could mess up the card. Use a butter knife or a piece from a plastic milk bottle. But what were you trying to pick a lock for anyway?
Legend: Cutting up a credit card closes the account.
Wrong! You must call the lenders phone number on the back of the card to cancel the account…so piece that card back together and get the phone number, make the call and cancel the account.
Legend: Closing an account removes it from your record.Wrong! Credit reporting agencies are a rather unforgiving lot and they have memories like proverbial elephants. Accounts remain on your credit report for seven years even the ones you have closed.
Legend: Even good credit information drops off your report after seven years.Wrong! Unlike humans, credit reporting agencies remember the good stuff forever (even if the accounts are closed) and forget the bad stuff after seven years. Unless, of course, you believe this
Legend: Paying off an old delinquent account improves your credit.Legend: Car dealers need to run your credit before you take a test drive.
Wrong! This is a fast one pulled by those super duper 60-day wonder salesmen. Don’t believe a word of it. You have not yet applied to buy anything and there is no reason for to check your credit until or IF that time comes.
This is not a myth or a legend. Their objective is to make as much money off you as they possibly can legally. It isn’t your imagination and you aren’t being cynical. They are out to get you and it’s getting worse by the day.
In 1978 there were fifty credit card issuing companies that accounted for 50% of the credit card market. Today there are only four companies that control 65% of the same market. Those four are American Express, Bank of America, Citigroup, and JP Morgan Chase. MBNA was the fifth but it has just been gobbled up by Bank of America. Less competition is never good news for consumers. Already these giants sign you up for card with a 0% introductory offer and then that rate goes up quickly and steeply. In that ittybitty fine print you didn’t read it says that the credit card company can do that with only a 15day notice. The period between a purchase and the time your interest starts is no longer 30 days either.
It’s been shrinking at an alarming rate. The fees you are charged for paying the bill late or going over your credit limit have exploded. The average penalty rate is around 24% but some are as high as 35%. Yes, the lack of any serious competition between credit card companies is hurting all of us.
What is a consumer to do? We are a nation addicted to plastic spending. When we make a purchase we just automatically reach for a credit card to pay for it. We use them to buy groceries, pick up our laundry and buy a hamburger. We need to break this bad habit, over-come this addiction and start using our credit cards wisely.
Suggestion : Cash a check at the bank and pay cash for everyday purchases. Use your credit cards only when necessary and avoid paying high interest and fees. If you’re sure that you have the money set aside and you have the discipline to pay the bill before it comes due, then and only then use your credit card. Otherwise, keep it in your pocket.
The truth: This is a widely held belief, but it’s false. Closing accounts, whether or not they have zero balances, whether or not they’re inactive, will often lower your scores. Why? Because part of your credit score is based on the ratio of your credit card debt to your total available credit. If you close a zero-balance account with significant available credit, this ratio gets smaller. It’s as simple as that.
On the other hand, you can also have too much of a good thing (too much available credit compared to your ability to pay). If you’re concerned that this may be true in your case, then you can close zero-balance accounts that you don’t need. If you plan to close more than one zero-balance account, wait a few months in between. Each closing will initially affect your score adversely, and it can take months for the scores to be adjusted upward.
Myth #2: It doesn’t matter what balance is on each card; it’s the total that counts.The truth: Another part of your score is calculated by looking at the debt to available credit ratio on each card individually. Ideally, keep this under 30% on every one of your cards. For example, if your credit line on a card is $2500, keep the balance below $750.
Pay your debt down instead of moving it around to other revolving accounts. Moving it around (for instance, moving balances to zero or low interest credit cards) can lower your scores. With all the offers for low initial rates, many consumers are moving their credit card balances over and over again, trying to keep their accounts at the lower rates. If you’re moving balances among accounts that you already have open, and if you can do it without going over 30% on each account, then this is okay. But if it means applying for a new account each time, don’t do it. Each application will lower your score.
Myth #3: More accounts and greater available credit always means a higher score.The truth: Don’t open new accounts you don’t need trying to increase your available credit. It can backfire. You need only four open and active accounts to establish great credit scores. Apply for credit only as you truly need it.
Many folks fall for department store promotions. The offer to get 10 or 20% off if you open an account may look like a great deal, but the activity can be detrimental to your credit scores. Don’t open accounts thinking it will raise your score, as it may not help at all. Have credit cards, but use them wisely. It is actually viewed that someone that has a good history of responsible credit use is a lower risk than someone with no credit cards at all. For the best score, ideally you should have a mix of installment credit (cars, furniture, etc) along with credit cards and mortgages.
Myth #4: Your credit reports are complete and accurate, even if you never make sure of it.The truth: If you have ever had a collection account, judgment or tax lien, don’t assume that the creditor, collection agency or taxing body will report the resolution to all three bureaus. That goes for erroneous reporting you find on your report too. Don’t assume that because you paid off a collection, judgment, or lien that it is immediately reported to the bureaus. Even when you close an account, it is often not efficiently reported as such to all bureaus. It is not uncommon to see such activity reported to just one bureau, even when the adverse account was being reported on your credit report by two or all three bureaus.
Unfortunately, agencies and creditors are quick to report you when you owe them money or have made a recent mistake, but they can be very slow to report the final resolution to that account when you have paid them. This problem is magnified when there has been a bankruptcy. Accounts that have been involved in a bankruptcy may have been moved between the creditors and various collection agencies long before the filing for bankruptcy protection. The creditor is reporting the account as delinquent and is likely reported it as a charge-off.
But the creditor has also sold the account to a collection agency, hoping to get a small percentage of their loss back if the agency can collect anything. This goes for credit cards, department store accounts and even installment loans like auto loans. The account is sold back and forth between creditors and agencies.
The problem is that after someone files for bankruptcy protection, and after the time has passed that it takes to successfully bankrupt the debts, the accounts may be sold multiple times. In addition, it is not uncommon to see an account go to collection after it has been discharged in a bankruptcy. You are thinking that you have a fresh start to rebuilding your credit after the bankruptcy, yet there may be new collection accounts dated after the discharge which has a huge impact on your already damaged credit scores.
What’s the remedy? Watch your credit reports like a hawk! No one else cares nearly as much as you do about making sure they’re accurate. You have to follow up with each individual bureau and supply them with copies of your discharge and lists of creditors to insure that everything is reflected accurately on your overall credit report. It can take years to see a rise in your credit scores if you don’t follow through with this. It is your responsibility to watch any such activity and make sure that all three bureaus have the most recent and accurate information possible. You can write and/or file online disputes with each individual bureau and supply copies of paid receipts and any correspondence you may have to insure that your record is recent and correct.