Top 5 Credit Score Mistakes

From SmartMoney.com

1. Missing a payment

It goes without saying that late payments hurt your credit. What many people don't realize is how much. "Being reported as delinquent in paying your bills is the biggest whammy for your score," says Craig Watts, a spokesman for Fair Isaac, the company that calculates FICO scores. A single late payment could sink you by as much as 100 points, especially if your credit history has been good up to that point. (FICO scores range between 300 and 850; anything 720 and above is considered good.)

2. Maxing out your cards

Guess what: You can have a perfect payment history, never a day late on your cards, and still have a less than average score, says Fair Isaac's Watts. "You could lower your score from an excellent category to a good or fair category simply by using most of the credit available to you," he says. Indeed, maxing out your credit cards could bring your score down from 749 to as low as 609, according to Fair Isaac's FICO Score Simulator.

Again, consumers with already low scores won't be hurt as much. A 573 score that has negatives such as delinquent accounts could drop to 543 if all accounts are maxed out, but could potentially remain the same.

3. Applying for credit (too many times within a short period)

Applying for credit can be tricky. On the one hand, you need credit cards if you want to build a credit history and have a good credit score. On the other, applying for too many cards too quickly can hurt you. That's because each inquiry (when a creditor pulls your credit report and score to see if you qualify) drops your score a little, says Watts.

How much depends on your previous history. Ironically, the more you need to apply for new credit -- say you're just starting to build a credit history or you're trying to recover from a bankruptcy filing -- the more inquiries will affect your score. "If someone already has significant credit problems on their report and now they're shopping for new lines of credit, that's an indicator that they're a higher credit risk," Watts says. Same with people with little or no credit because there isn't sufficient information on the report reflecting positive credit management to balance the negative impact of the inquiries.

What to do? "Take it slow," Watts says. "That's good advice for anyone, but especially if you're trying to recover or are new to credit."

4. Closing Credit Cards

Many folks think closing unused credit cards will improve their credit score. Quite the opposite: Closing unused accounts in fact decreases your score, Watts says. Why? You're eliminating a chunk of available credit, which then automatically increases your credit utilization, or how much of your available credit you're using. Credit utilization is responsible for a hefty 30% of your credit score, so the effects of closing a credit card with a generous limit could be pretty severe.

5. Moving

How can the simple act of moving affect your credit score? It's simpler than you think. Even if you forward your mail to your new address, bills -- including utility bills -- can and often do get lost in the shuffle. "Suddenly, someone who's never been late has a collections account reported to the bureaus and the damage would be just as severe as with a delinquency," Watts says. "A $5 library fine could suddenly lower someone's score by dozens of points."

The bad news: You'd think a collections agency would call you about that unpaid bill before reporting it to the bureaus, but that's not always the case, says Credit.com's Ulzheimer. "They'll take the lower-dollar collections accounts and just report them to the bureaus without even contacting the consumer," he explains. "It's easier to report to the bureau rather than wasting time trying to collect $80." Then when you try to buy a house or car and get denied because of the collections account, you'd have to track down the agency yourself and pay up. An efficient business model, to be sure, and all the more reason to be vigilant about paying your bills.


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Homeowners - Understanding Your Credit Report

Many homebuyers put off meeting with a mortgage broker until the last possible minute. After all, nobody likes having the intimate details of their credit reviewed. The images in our heads are of pompous bankers making arrogant judgments about our worth as human beings. But the good news is that it's never been easier to find financing for your home, and most mortgage lenders are friendly and courteous. Keep in mind, they want your business - that's how they get paid. And besides, in today's economy, the likelihood is that your banker's credit isn't without a blemish either.

Still, you'll feel much better about approaching a lender when you know what's on your credit report. Viewing your credit report allows you to prepare explanations for any past transgressions, and also to dispute the veracity of any incorrect information. While accessing your credit report isn't always free like it used to be, it is easy and relatively inexpensive. There's no reason for you to put it off for even one more day.

What Are Credit Reports?

There are three major credit reporting agencies in the United States, Equifax, Experian, and TransUnion. Each of these private companies compete with one another in the free market, selling your information to potential creditors, employers, landlords, and insurers. This means that you don't have just one credit report, but three.

Since the three major credit bureaus are business adversaries, they don't make a practice of sharing information. As a result, each of your three credit reports (and resulting credit scores) could be vastly different. Perhaps Experian has an old delinquent account that you actually paid, or maybe TransUnion doesn't have one of your credit cards on file. Including incorrect negative information or omitting correct positive information can lower your credit scores, so it's important that you know what's on your credit reports before applying for a mortgage.

What Are Credit Scores?

You probably haven't heard of the Fair Isaac Company, but I bet you've heard of its nickname, FICO. Fair Isaac is the company that developed the credit scoring software that each of the three major bureaus use to calculate your credit score.

FICO scores range from 300 to 850, and you're likely to have a different, possibly very different, score with each of the three agencies. This is because not only might they have different information, but Equifax, Experian, and TransUnion each use a different formula to determine your score. Some lenders subscribe to all three agencies, others just one or two. If you're lucky, your lender will only check the credit bureau with which you have the highest score, but it's a crap shoot.

How Can I View My Credit Reports and Credit Scores?

In the past, you were legally entitled to receive one free credit report from each of the three major bureaus each year. Congress took away that right in 1997, so be skeptical of any online ad you see promising a free credit report - there are always strings attached.You can legitimately request a free credit report if you are denied credit, employment, or insurance. The company that declines you must supply written notice explaining, in brief, why you weren't approved. Photocopy this information and send it to the three credit agencies with a requests for free credit reports.

Knowing what's on your credit report can be a big relief, and also save you a lot of money. If there are any errors on your report, you need to have them removed. Otherwise, you could end up paying a higher interest rate. Understanding your credit report should be the first step for any intelligent person in the market for a new home.

For more info and to order your credit report with FREE credit score please visit www.reliacredit.com

Build Your Credit History

Even if you don't think your credit history is good, or if you don't think you have any at all, consider checking your credit report to find out just where you stand. You might be surprised. If you notice negative information on your report, confirm that that information is accurate. Most derogatory information, such as a loan payment that was 180 days late, must remain on your credit report for at least 7 years. However, if a negative record is not accurate, be sure to send a letter of dispute to the credit bureau that reported the error.

The next step in building or rebuilding your credit history is to get a credit card. You may have to start with a secured credit card, in which a savings account is used as collateral for your credit. Also consider special-interest cards that are oriented to your purchasing habits, such as a gas card or department store credit card. No matter what card you decide to get, be sure to read the fine print and watch for high APR rates, setup fees, annual fees, and short grace periods. Be sure to use your new card responsibly and make all your payments on time.

For more info and to order your credit report with FREE credit score please visit www.reliacredit.com

Should I use a Credit Repair agency?

Despite their great claims to eliminate your negative records or improve your credit score in a short time, credit counseling agencies, credit repair companies, and debt consolidation agencies can be severely damaging to your credit, and your wallet. The business of credit counseling is worth an estimated 7 billion dollars a year. These companies can charge you on a percentage of your debt or demand a large setup fee. If you are seeking credit counseling, odds are that you'd rather apply that money directly toward paying off the debt itself. Be sure to consult the fine print and know what kind of payment basis you are committing to.

Bear in mind that when a credit repair agency steps in to mediate between you and your creditors, you will still be held fully responsible for your outstanding debt. An unethical but common practice of credit repair agencies is to keep your first round of late payments for themselves. This may create or add to a record of late payments that can remain on your credit report for several years. If you decide to work with an agency, it's wise to periodically check your credit report to make sure that payments are being made on time.

What many people don't realize is that you have the power to do for yourself all the things that a credit repair agency can do for you. You can negotiate a payment plan directly with your creditors, reduce your debt, and improve your own credit score or get your finances back on track. The money that you would spend for the assistance of an agency can be used to pay down your debt. If you are trying to remove erroneous negative information from your credit report, see the section below on disputing errors.

For more info and to order your credit report with FREE credit score please visit www.reliacredit.com

Scoring your Credit - How's your FICO?

In today's increasingly automated society, it should come as no surprise that when you apply for a mortgage, your ability to pay can be reduced to a single number. All the years you've been paying your mortgage, car payments, and credit card bills can be analyzed, sliced, diced, spindled and mutilated into a single indicator of whether you're likely to meet your future obligations.

All three of the major credit reporting agencies (Equifax, Experian and TransUnion) use a slightly different system to arrive at a score. The best known is called the FICO score, based on a model developed by Fair Isaac and Company (hence the name) and used by Experian. Equifax's model is called BEACON, while TransUnion uses EMPIRICA. While each of the models considers a range of data available in your credit report, the primary factors are:

Credit History - How long have you had credit? Payment History - Do you pay your bills on time? Credit Card Balances - How much do you owe on how many accounts? Credit Inquiries - How many times have you had your credit checked?

Each of these, and other items, are assigned a value and a weight. The results are added up and distilled into a single number. FICO scores range from 300 to 800, with higher being better. Typical home buyers likely find their scores falling between 600 and 800.

FICO scores are used for more than just determining whether or not you qualify for a mortgage. Higher scores indicate you are a better credit risk, and thus may qualify for a better mortgage rate.

What can you do about your FICO score? Unfortunately, not much. Since the score is based on a lifetime of credit history, it is difficult to make a significant change in the number with quick fixes. The most important thing is to know your FICO score and to ensure that your credit history is correct.

For more info and to order your credit report with FREE credit score please visit www.reliacredit.com

Credit Basics - Credit Report

A credit report is a report that is generated using information that is present from your creditors including debts that you have currently and debts that you have had in the past. This information is most often used to determine what level of risk you may be when a new lender is trying to determine on whether or not you will be able to pay back a loan from them. While this may be the main reason for a credit report it is not the only one. Your credit report can also be of use to you as well. First off the most predominate item that will notice on your credit report is personal information. This generally includes name, address, phone number and social security number. All of this information should be complete and accurate.

The next portion of credit report starts to break down individual accounts. Often this section of a report will start with a summarization of all of paid and unpaid account with all lenders involved. It will then progress to a chronological listing of any public matters that are relevant to credit. These most often include such things as judgments against or discharges. The next part of a credit report breakdown the individual listing of any one to whom owe money to or are currently receiving payment from. These are reflected as collection accounts and open accounts. Usually the items contained within these sections hold the most influence in regards to credit score.

For more info and to order your credit report with FREE credit score please visit www.reliacredit.com

What should I look for in my credit report?

It is important to frequently review your credit file to verify the following:

• Name
• Address
• Social Security Number
• Date of Birth
• All accounts listed are your own
• Credit/charge accounts
• Outstanding balances/limits on the accounts
• Payment histories
• Derogatory credit information has been deleted after seven years (non Chapter 13 bankruptcies after 10 years).
• Inquiries

For more info and to order your credit report with FREE credit score please visit www.reliacredit.com

You balance your checkbook and check your portfolio, but how frequently do you check your credit files?

Credit files are windows into your private life. Lenders look at your credit history to assess your creditworthiness. It’s to your advantage to know what your credit report says before you apply for credit so you can correct any inaccurate data. It can take up to six months for credit reporting agencies to make a change in your credit report, so give yourself at least that long before you start shopping for a mortgage, car or any other large purchase.

It’s also important for you to understand that with the rise in identity theft and credit card fraud, you may not know that someone has assumed your identity or opened new accounts until they default on loans, or collection agencies start calling you. With a credit monitoring service like Identity Guard® CreditProtect®, you will be notified of changes so you can act quickly if you suspect fraud.

For more info and to order your credit report with FREE credit score please visit www.reliacredit.com

Why should I review my credit files from all three credit reporting agencies?

Each credit reporting agency records information it receives from your creditors. You can’t control which credit reporting agency (Equifax®, Experian® or TransUnionSM) your lender uses, so prepare yourself by checking all three agencies for accuracy.

For more info and to order your credit report with FREE credit score please visit www.reliacredit.com

What is a credit score?

A credit score is based on variables in your credit file that help determine your creditworthiness. The number is based on various factors, including the number of trade lines you have open, the number of late payments, delinquencies, etc. Lenders look at your credit file and other factors to determine your creditworthiness.

For more info and to order your credit report with FREE credit score please visit www.reliacredit.com

Why is my credit score so important?

Lenders carefully consider your credit score because it provides them with an objective measure of your creditworthiness. Your score can be impacted by many factors such as late payments, delinquencies, or high amounts of debt. Lenders may deny your loan or charge you a high interest rate if you have a low score. If you have a good credit history, you may have more options available to you resulting in lower interest rates and big savings.

Lower loan rates can mean thousands of dollars in your pocket over the years. If you purchase a home for $250,000 at 8.3% interest you will pay $679,306 over the course of a 30-year mortgage. At 6.5 % interest, however, you will pay only $568,861---a savings of $110,445.

For more info and to order your credit report with FREE credit score please visit www.reliacredit.com

6 Steps to Better Credit

1. Pay your bills on time. Creditors scrutinize your credit history. If you pay your bills on time, this reflects well on you. If you have a record of delinquent payments, you might want to consider credit counseling on how to better manage your finances.

2. Manage your debt. Your debt/income ratio — the percentage of your income that goes to paying off debt — is another gauge of your financial health. You can calculate this ratio by dividing your monthly minimum debt payments (excluding mortgage) by your monthly take-home income. If your debt payment absorbs:

• Less than 20% of your income, you are doing well
• Between 20% to 35%, consider reducing your overall debt
• More than 35% consider credit counseling or some type of aggressive debt-reduction strategy

3. Don’t over-apply for credit. Limit the number of loan applications you submit. Each bid shows up as an inquiry in your credit report. Even if you’re just comparison-shopping for the best rate, too many inquiries can be viewed as a desperate bid to obtain credit to get out of financial trouble.

4. Shred your documents. Be sure to destroy any piece of paper with Social Security or credit card numbers. Thieves often go through garbage retrieving people’s identification so they can use this information to commit fraud.

5. Don’t give information away. Never include your Social Security Number your checks, driver’s license or health insurance card. Be extremely cautious how you use your Social Security Number, it is your key personal identification number that is a gateway to your personal identity. If required to provide this information, always ask if there is another option.

6. Check your credit reports on a regular basis. The only way to protect your name and credit is to be proactive. With the rise of identity theft cases, it is important to review your credit files, and to report any inaccuracies to the major credit reporting agencies.

For more info and to order your credit report with FREE credit score please visit www.reliacredit.com