Having good credit is essential to a healthy financial life and to ensure that you’re able to do things you want to do such as purchase a vehicle or house, or even get a cell phone contract.
Many people aren’t aware of what their credit score is, how it’s determined, or how to improve their credit score if it’s not where they’d like it to be. In this article, we look at the credit report, which is where you go to find out everything you need to know about your credit and to see what lenders see when they consider lending you money.
What is a Credit Report?
A credit report is a document that details your credit history, activity, and your current state of ‘creditworthiness.’ Because multiple agencies report on your credit, most people have more than one credit report. These reports contain information such as your payment history, how much you owe, and your general financial history. In the United States, there are three reporting agencies: Equifax, Experian, and TransUnion.
The importance of the credit report is that it’s used by lenders and companies who decide whether you’re an acceptable risk to lend money, extend credit, or offer a contract to. And, it’s not just banks who use credit reports; it’s companies like cell phone providers, cable companies, and utility companies who look at the information and decide whether to provide you with their product or service based on the information therein.
Most credit reports contain the following information:
Your personal data such as your name, address, date of birth, social security number, and phone number.
Credit accounts, including mortgages, vehicle loans, credit cards, and store cards. This information also includes your balances for each account, your payment history, the date the account was opened or closed, and your credit limit.
Also included in the credit reports are incidents such as bankruptcies, foreclosures, credit inquiries, and liens.
As you can see, your credit report contains quite a bit of information about your financial and credit health, which is why it’s vital you know what’s in it so you can improve areas that are bringing you down or dispute items that are in error.
How Often is it Updated?
In general, your credit report is updated every 30 to 45 days, and upon getting updated, your credit score will reflect any changes very quickly. Keep in mind that while most creditors report to the agencies every month, they may report at different times of the month and may not report to all three credit bureaus. So, while your score and information may be decent in one report, it may not be so good in another if they both don’t have the same information; that’s why it’s essential to get your credit report from all three bureaus to get an accurate picture of where you stand in relation to credit.
If you’re worried about your credit score, remember, these scores are usually calculated when a lender requests that information. The score you get when you request your credit score depends on which company was used to score your credit, which bureau supplied the data, and what your score will be used for, such as a loan. If your score isn’t where you’d like it to be, you can take measures to put it in the right direction and see results quickly if you work hard.
Which Report is the Most Accurate?
Since all credit bureaus have to follow the same laws, it’s not prudent to say which one is the best or most accurate. While these companies are for-profit businesses and do compete with one another, there isn’t an advantage for one to ‘skew’ your credit one way or the other. Also, keep in mind that you won’t know which agent your creditor will check when you’re applying for a loan or credit; and while your credit may look pretty good on one report, it may not be so hot on another. Keeping track of your credit report from each agency is key to getting a good picture of your credit health and staying on top of issues that could drag down your score. And, because errors on one report don’t necessarily make it onto all three, it’s essential to look at all of them to make sure all of your information is accurate.
How to Get a Free Credit Report
According to the FTC, everyone is entitled to get one free copy of their credit report every 12 months from each of the major credit reporting agencies thanks to the Fair and Accurate Credit Transactions Act of 2003. You can go online to get your report at annualcreditreport.com or by calling 1-877-322-8228. Free credit reports are also available by checking Credit Karma or Credit Sesame.
You’re required to give them your name, address, social security number, and DOB to make sure you are who you say you are.
There are other situations in which you can get another free credit report such as if you’re unemployed and will begin looking for a job soon, if you’re on welfare, if you’ve been a victim of identity theft and have errors on your credit report because of it, and if you’ve been denied credit because of information contained in your report.
To find out where you stand in regards to your credit it’s essential you get a copy of your credit report every year; it’s free, and this report plays a huge role in your ability to use capital to improve your life or make large purchases.
Also, reviewing your credit report as you would your bank statement allows you to find out if there is any misinformation that could be dragging your credit score down or keeping you from getting credit. Finally, information on a credit report is often the first sign that someone has been a victim of identity theft.
If you need help deciphering your credit report, or assistance in rebuilding your credit score, contact credit repair attorneys today!
Having your credit limit reduced is common and can even happen if you’ve been good with credit and made all your payments on time. When a creditor lowers your credit limit, it can negatively impact your credit score. However, you need to know that there are things you can do – by yourself and with the help of a credit repair company – when this happens to minimize the damage to your credit and to fix the problem
Why Would a Credit Limit be Reduced?
So, you received a message from your credit card company notifying you that your credit limit has been lowered. It happens all the time, and while it’s frustrating because it limits your purchasing power and harms your credit score, you don’t have to sit around and accept it.
Why Would a Bank Lower Your Credit Limit Anyway?
During times of financial crisis or recession, banks may evaluate outstanding risk, which is often unused credit. To minimize the risk to banks in uncertain economic times, the bank may choose to slash your credit limit in the event you decide to use your card more and wind up not being able to pay because of financial circumstances.
It’s important to remember that credit limits aren’t a right, nor are they guaranteed; a bank can reduce your credit limit at any time, and they don’t need to give you a reason. You did read the fine print when you signed up for your card, didn’t you?
Also keep in mind that the reduction of credit limits is usually made by an algorithm rather than a human being sitting down and assessing your financial health, payment history, and credit.
Another reason a bank or credit card company might lower your limit is because of ‘low usage.’ If you have a limit of $20,000 and you’re not using a fraction of that, the bank may alter your limit to reflect your usage pattern.
Does it Matter if Your Limit Is Lowered?
In a word: Yes. When a bank lowers your credit limit, it immediately affects your buying power and the amount you’re allowed to borrow. Also, a reduced credit limit can affect your credit score by increasing your overall credit utilization. For example, let’s say you had a limit of $20,000 and only had a balance of $5,000. You’re only using a quarter of your credit, which looks good on your credit report. However, if the bank suddenly slashes your credit limit to $10,000, now you’re at the half, which looks terrible and reflects poorly on your credit score. Credit utilization accounts for 30 percent of your credit score, so it’s easy to see how a lowered credit limit can reduce your score.
Now, it’s important to remember that while a bank can reduce your credit limit for any reason, what they can’t do is cut it and then hit you with an over-the-limit fee if you’re currently above your new limit. The bank is required by law to give you at least 45 days from the time they notify you about your lowered threshold before assessing any fees.
What to do if Your Limit is Lowered
Most people assume there’s nothing they can do when they get notified that their credit limit has been lowered, but that’s not the case. The first thing you can do is to contact your creditor and ask to speak to a representative. Remember, most times the limit was lowered by a computer algorithm rather than a person, so talking to a live rep is an excellent way to get answers as to why this happened, whether it was an error, and if your old limit can be restored. Remember to be polite when you call, and it never hurts to mention how long you’ve been a customer and never missed a payment if that’s the case.
If you’re new lowered limit has put your credit utilization in a bind, consider transferring the balance to a card with a higher limit. If you’ve been in the market for a new card, now is the time to go on the hunt to find one with zero percent interest for balance transfers. Just keep in mind that opening new lines of credit can cause your credit score to take a hit too.
What you don’t want to do is to close out your old card to spite the bank because if you have a long credit history there, that’s going to reflect negatively on your credit score if you wipe out years of on-time payments. Also, closing out that account lowers the available credit you have to work with, so transfer the balance, and suck it up. If you maintain good relations with that bank and continue to make on-time payments, there’s a good chance you can get your limit raised in the future if needed.
It’s also essential you monitor your credit reports when a limit gets lowered to see what kind of a hit you take. If your score does drop, you can take the necessary steps to build your credit score back up such as using your card for small purchases like Netflix or coffee and paying it off every month to keep the account active and in good standing.
Finally, paying off your balance quickly on the card that got hit with the lower limit goes a long way to bringing down your credit utilization and pointing your credit score in the right direction.
Having your credit limit lowered isn’t a reflection on you or your credit, so don’t it personally. These things happen to everyone; you have to be smart about how to handle it and roll with it until you can get yourself straightened around.
Make your payments on time and pay down your balances to ensure your credit score moves up. And keep in good standing with your bank that lowered your rating in the hopes it can be restored in the future.
Your credit score determines a lot of things in life. A poor credit score can keep you from securing an auto loan, being eligible for an apartment lease. It can also determine the interest rate on any credit card that you apply for. That is why having a good credit score is so important, but how can you get a good credit score if you currently have a bad one?
Credit issues are sometimes complicated, and improving one’s credit score can be a very time-consuming endeavor, which is why many people opt to hire professionals to assist in improving their credit scores. These professionals are employees of credit repair companies.
A credit repair company is a business entity that offers to improve the client’s credit in exchange for payment. You can hire these active companies to raise your credit score. Once you hire one, they typically go about improving your score by first requesting your credit report from each of the three major credit bureaus.
They look for derogatory marks such as charge-offs, bankruptcies, and tax liens. They also look for possible errors in your report that could be negatively affecting your score. Then they usually petition for these marks to be dropped off your record or negotiate with the creditors to make your report more favorable.
Once they have done everything they could on their end to amend your credit report, a good credit repair company will then work with you directly to devise a financial plan that will keep you on the right path towards better credit. There are a lot of essential questions that get asked of these companies during this process, which include:
How Long Will it Take to See an Improvement in my Credit?
The length of time will vary greatly depending on the situation, but there are usually simple steps that can be taken that make an immediate improvement. A credit repair company can request certain frivolous marks against your credit be removed, and creditors will usually comply with these requests. So a good credit repair company can make a slight improvement in as little as a month.
If a request for an investigation is made on the client’s behalf, the reporting bureau has 30 days to complete the investigation to determine if any mark should be stricken or sustained. Of course, the bureau has the right to review and deny any request for an inquiry if they deem it to be dubious.
Sometimes though it is not as simple as sending out a letter and improving a client’s credit can take up to a year. This usually happens when litigation must be involved to dispute fraudulent reports from crediting entities.
Do you Offer A Money Back Guarantee?
What if a client’s credit cannot be improved? There are certainly cases that can’t be helped so what if you hire a credit repair company and they can do nothing for you? These situations are why so many companies hear questions about a money-back guarantee.
The truth of the matter is that most reputable credit repair companies will not ask for money upfront. The credit repair industry is rife with scams, and one of the most telling signs that you are dealing with an illegitimate organization is if they ask for money before any services are rendered.
On the flip side, almost all respectable credit repair companies will not charge you if they could not improve your credit score and they will never guarantee results. They will usually offer a free initial consultation wherein they will assess your situation and how they might be able to help. Or not.
What Kind of Information will I need to Provide?
The reason people opt to work with credit repair agencies is there is usually a lot of confusing red tape, and the process takes a lot of time. So one concern that is often expressed relates to how much of the client’s time will need to be committed to the process and what kind of information or documents they will need to produce.
Most companies will request things like a list of current debts, payment histories for existing obligations, and if possible, the client’s credit utilization rate. This will involve gathering some documents and also giving the company access to any credit monitoring software that the client uses.
Hiring a credit repair company will usually mean a correspondence will open up between the company and creditors and the credit bureaus. All correspondence letters are sent to the client’s address, and they will need to either physically give copies of these letters to the company or send them digital copies.
There is no improving your credit without being directly involved in the process and carving out at least a little time to work with whatever company you hire so you should avoid any company that says they will take care of everything for you as they are probably trying to scam you.
The good news: We live in an age where you can pretty much do anything with the assistance of software.
The bad news: Software has only come so far in replacing the services of professionals.
You can purchase software for everything from filing your taxes to improving your credit score, but when it comes to the latter, it is best to entrust your precious credit standing to professionals. The main reason is that credit repair software will require you to do 99% of the work and unless you are a credit wiz, this kind of software will not benefit you much. Here are the reasons why hiring a credit repair company is advisable overusing credit repair software.
Hiring A Professional Saves Time
Unless you know somehow that improving your credit will be as simple as sending a request for investigation to one of the three credit bureaus then repairing your loan can be a very time-consuming ordeal. In some cases, lawyers will even need to be involved in your case involves taking a creditor to task for false reporting.
When you hire a professional, you will need to be involved. For example, most companies have a consultation and what’s known as an intake session where they gather as much pertinent documentation from the client as they can. Apart from attending these sessions and finding and submitting these documents, though, you will not need to commit very much more time in this endeavor. Most credit repair companies work every month in the background. All the client usually has to do is forward correspondences they receive from creditors or bureaus.
With software, the individual will need to pore through their own documents so that they can input critical information into the system, which is essentially a glorified spreadsheet. They will also need to read through all correspondence letters and reply to them directly – all very time-consuming activities.
Software Cannot Fight For You
First of all, no software no matter how advanced can interact with the credit bureaus or credit issuing entities so forget about disputing frivolous reports or getting things like liens and charge offs stricken form your credit report.
There are certain legal time limits that the bureaus have to process requests for investigation and disputes. A professional credit repair company will stay on top of these deadlines and keep track of the process as it develops. They will make sure that the bureaus are doing what they need to do for your best interest and fight against the irritating bureaucracy on your behalf.
At best, credit repair software can update you as to the process of disputes, but you will be responsible for filing the conflicts in the first place and deciding what to make of these process reports.
A Sounder Investment
There is never any guarantee that you or anyone you hire will be able to improve your credit score, but at least when you hire a professional, there will be some sort of money-back guarantee if they can’t do anything for you.
When you “invest” in the credit repair software, there is no money-back guarantee. If you cannot improve your own credit score by using the software you are on the hook for however much you paid for it and for however long you subscribed to the service.
The higher-end credit software suites can cost up to $400 too. Most people’s credit can be improved by at least a little within 2 months, which sounds favorable when you consider that most professional credit services charge $30 to $100 a month.
A More Comprehensive Approach
At least at the time of this writing, the personal approach cannot be quantified. When you hire a credit repair company, you will have the option of working with a human professional to devise a financial plan that you can follow to better credit. This includes an in-depth analysis of your current debts, finances, your financial goals, and in some cases, one-on-one financial coaching services.
No software can provide this thorough analysis and come up with a financial plan specifically suited to your situation. In fact, most credit repair software simply offers dispute letter templates that you can fill out and send to creditors. If you opt for the more expensive software packages, you might be given access to a real live credit expert who can walk you through the process, but at that point, you will be spending as much as you would if you hired an expert only without all the additional services.
They Put the Law on Your Side
Fixing credit is not always just a matter of getting negative marks off your record. Sometimes collection agencies have lawyers, and they will not yield to the average citizen that their actions are unlawful or that their grounds for collection are false.
Software does not know the law, and they cannot talk to these collection agency lawyers to show them that a mistake has been made or that their actions are illegal. But a high-caliber credit repair professional will know the law and put it to work for you.
There are also specific laws that have been enacted such as the Fair Credit Billing Act, the Fair Credit Reporting Act, and the Fair Debt Collections Practices Act to protect consumers and can be leveraged for the benefit of your credit. For example, there are only specific ways a collection agency can go about trying to collect a debt under the FDCPA, and when they violate this act, a professional can leverage the violation as a way to dissolve the deficit for the client.
Simply put, no software can do this for you. In the end, hiring credit repair professionals can save you time, money, and make sure that you have a sustainable way to good credit in the future.
Stated by The Phenix Group, one of the main reasons that people are reluctant to file for bankruptcy even when they are drowning in debt is that bankruptcy negatively impacts one’s credit score. Depending on the type of bankruptcy on files, the filer can expect a totally score drop of 160 to 220 points. Even if you had good credit to start with, this is a significant drop and one that will probably discourage all creditors from issuing loans or giving out credit cards.
Still, the reason that many people ultimately do file is that they simply have no way out of their situations and they come to realize that letting debts age and pile up is ultimately harsher on your credit score than waving the white flag and admitting that they have no solvency.
Why Bankruptcy May Be Better Than Waiting It Out
Hopefully, you are not on the brink of bankruptcy, but you may be wondering what benefit there would be to filing bankruptcy as opposed to just letting your debts go unchecked. First of all, it is essential to know precisely what filing for bankruptcy does. Depending on the kind of bankruptcy you are filing, doing so effectively lets you off the hook legally for any outstanding debt that you have.
This means that creditors no longer have the option of taking you to court to collect on delinquent debts. That may sound enticing but keep in mind that bankruptcy can murder your credit score.
So is bankruptcy better than just waiting it out? That depends. Most states impose a statute of limitations on debt, which means that a creditor only has a certain amount of time to sue a person for failing to pay a debt. In some states, the statute of limitations expires after 4 years so whether or not it would be better to roll the dice and pray that you can be delinquent long enough without your creditor suing will depend on the state you live in.
It will also depend on your age, marital status, and income. A creditor will be less inclined to act before the statute of limitations expires and actually sue you if you are a senior citizen living on a fixed income. But let’s say you are in your 30’s, have a job and don’t have a spouse and have not started a family. Then you are a juicy target for litigation because not only will you have the time to pay off your debt as mandated by a judge, but you have a job and source of reliable income.
In this case, it would probably be preferable to file for bankruptcy than taking a huge risk that a creditor won’t sue you while they have the opportunity.
Differing Kinds of Bankruptcy
By far, the two most common types of bankruptcies filed in the US are chapter 7 and chapter 13. To put it in simple terms the main difference between these two is that chapter 7 is a relinquishing of all debts legally and chapter 13 is more like a legal payment plan that is decided in the courts. So basically, 7 will automatically relieve you of debt and 13 will adjust the way that you must pay your debt. But, as always, there are caveats.
A Breakdown of Chapter 7 Bankruptcy
To be eligible to file for chapter 7 bankruptcy, you must prove beyond the shadow of a doubt that you do not have the income to pay off your debts feasibly. Chapter 7 gets you off the hook legally for having to pay back your debts, but it can be excruciating and not just because it lowers your credit scores. The court will decide which of your assets are nonexempt, and any nonexempt assets or properties will be appropriated and sold to help pay off your debts. You can keep any property or asset that the court deems exempt.
So it is conceivable that a court will deem a debtors home as nonexempt property if for example there is high equity on the home. In which case, the debtor’s home will be taken and sold. Any remaining debt that cannot be paid off by liquidating nonexempt assets will be transferred from the filer of chapter 7 and committed to a court-appointed trustee.
A Breakdown of Chapter 13 Bankruptcy
Chapter 13 bankruptcy allows the debtor to settle on a payment plan with their creditors. Unlike chapter 7, chapter 13 does not get the debtor off the hook for paying back debts. Instead, it allows the debtor to work out a payment plan over 3 or 5 years, depending on the situation. The payments then go to a trustee who doles it out to creditors, and the debtor has no more direct contact with entities they owe money to. Chapter 13 will also halt foreclosure proceedings, which allows the debtor to keep their home and nonexempt assets.
How Long Do Chapter 7 and Chapter 13 Stay on Your Credit Report?
Another critical distinction between chapter 7 and chapter 13 is how long they affect your credit score. The law stipulates that any bankruptcy will not stay on the debtor’s record for more than ten years. In the case of chapter 13, however, the motion will only be on your credit report for 7 years.
Chapter 7’s usually stay on your record for 10 years since the situation is often direr and the individual is basically saying they have no way of paying back the debts.
You don’t have to do anything to get these marks off your record as they are required by law to be dropped off after 7 or ten years. There are also ways that you can start to rebuild your credit in the 7 or 10-year span that the filing stays on your record. While bankruptcy is a very serious situation and can ravage your credit, all hope is not lost. With time and responsibility, you can come out of it better and more successful.