Improve a poor credit rating so your next credit check is better.
Where do credit
reports and credit data come from?
Credit reports are
compiled by credit bureaus -- private, for-profit
companies that gather information about your credit
history and sell it to any number of businesses that
are allowed to see your credit report: banks, mortgage
lenders, credit unions, credit card companies, department
stores, insurance companies,landlords, and employers.
The three major credit
bureaus are Equifax, Experian, and TransUnion.
Credit bureaus get
most of their data from creditors. They also search
court records for lawsuits, judgments, and bankruptcy
filings. And they search county records to find recorded
liens (legal claims).
Credit reports include
noncredit data too, such as current and former names,
past and present addresses, Social Security number,
employment history, and even marriages and divorces.
Your report will include the names of your creditors,
type and number of each account, when each account
was opened, your payment history, your credit limit
or the original amount of a loan, and your current
balance. If an account has been turned over to a
collection agency or is in dispute, that will appear
in the report as well.
How can I get a
copy of my credit report?
You can get a free
copy of your report once a year, from each of the
three major credit bureaus. To order your free report,
go towww.annualcreditreport.com or call 877-322-8228.
You are entitled to
an additional free copy of your credit report each
year -- even if you've already received your annual
free report as described above -- if:
* you've been denied
credit because of information in your credit report
* you're unemployed and looking for work
* you receive public assistance
* you believe your file contains errors due to fraud or identity
theft, or
* you've been denied employment (or another adverse employment
decision has been made) based in whole or in part on information
contained in the report.
How long can negative information stay in my credit report?
Most negative information
can appear in your credit report for seven years.
This includes lawsuits, judgments against you, paid
tax liens, accounts sent to collection, criminal
records (except criminal convictions, which may be
reported indefinitely), late payments, and overdue
child support.
Some adverse information
regarding certain types of student loans may be reported
for more than seven years. Bankruptcies can stay
in your credit report for up to ten years after the
last activity (usually the date you received your
discharge or the date the case was dismissed).
Credit inquiries (requests
by companies for a copy of your credit report) can
be reported for only two years.
For more information,
see How to Clean Up Your Credit Report.
What should I do if I find mistakes in my credit report?
Make a list of everything
that's incorrect or out of date in your credit report.
Examples of incorrect information include:
* incorrect or incomplete
name, address, phone number, birthdate, Social Security
number, or employment information
* bankruptcies not identified by their specific chapter number
* accounts that are not yours or lawsuits in which you were not
involved
* incorrect account histories, such as a history of late payments
when you paid on time
* any closed accounts that are listed as open -- it may look as
if you have too much open credit, and
* any account you closed that doesn't say "closed
by consumer."
Then, complete the
disputed items form provided by the credit bureau.
List each incorrect or out-of-date item and explain
exactly what is wrong. Once the credit bureau receives
your request, it must investigate the items you dispute
and contact you within 30 days.
If you are right that
the information is inaccurate or incomplete, or if
the creditor who provided the information can no
longer verify it, the credit bureau must remove the
information from your report or modify it based on
the results of the investigation.
What can I do to rebuild my credit?
Start by cleaning
up your credit report. Then, build credit by adding
positive information to your record. Here are two
suggestions:
* If your credit
report is missing accounts you pay on time, send
the credit bureaus a recent account statement and
copies of canceled checks showing your payment history.
Ask that these be added to your report. The credit
bureau doesn't have to add this information, but
often will.
* Creditors like to see evidence of stability, so if any of the
following information is not in your report, send it to the bureaus
and ask that it be added: your current employment, your previous
employment (especially if you've been at your current job fewer
than two years), your current residence, your telephone number
(especially if it's unlisted), your date of birth, and your checking
account number. Again, the credit bureau doesn't have to add these,
but often will.
I've been told that I need to use credit to rebuild my credit.
Is this true?
Yes. Creditors like
to see evidence in your credit report that you have
a history of paying off credit on time. If you have
a credit card, use it every month. Make small purchases
and pay them off to avoid interest charges. If you
don't have a credit card, apply for one. If your
application is rejected, try to find a cosigner or
apply for a secured card -- one issued after you
deposit some money into a savings account, against
which you can charge purchases.
But a word of caution:
Before you apply for credit, get back on your feet
financially. Otherwise, you're likely to end up with
high-cost credit that will put you back in the hole
again.
How many credit cards should I carry?
Once you succeed in
getting a credit card, you might be hungry to apply
for many more cards. Not so fast. Having too much
credit may have contributed to your debt problems
in the first place.
Ideally, you should
carry one or two bank credit cards, maybe one department
store card, and one gasoline card. Creditors want
to see that you can handle more than one credit account
at a time. But use all of the cards only if you can
pay the charges in full each month -- don't build
up interest charges.
Creditors may frown
on applicants who have too much open credit. So keeping
many cards may mean that you'll be turned down for
other credit -- perhaps credit you really need. And
if your credit applications are turned down, your
file will contain inquiries from the companies that
rejected you. Your credit file will look like you
were desperately trying to get credit, something
creditors never like to see.
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