1. How long does negative information stay on your credit reports?
I’ve heard “seven years.”
2. Why are there 3 credit bureaus and how do they differ, if at
all?
3. Should I pay off a judgment that is showing up on my credit
report? If I do, and it is marked “paid,” what will this mean?
4. Will all delinquent bills be reported to a credit bureau?
5. What are the top ways to re-build your credit score quickly?
6. Are there any legitimate ways to “repair” your credit
and credit scores?
7. If I have absolutely new credit how soon can I see a credit
score developing?
8. How many times can I pull my own credit report through services
like www.credit.com before it impacts my credit score?
9. How much does having my credit checked by a credit grantor impact
my score?
The vast majority of both positive and negative information stays on your credit
reports for no longer than seven (7) years from the date that activity on the
account ceases. This can mean that the account has been closed or paid in full.
Accounts such as credit cards and mortgages can stay on a credit report for
well past seven years because those types of accounts commonly remain active
for many years. There are, however, some notable exceptions to the “seven
year rule”,
- – These
will stay on your credit reports for up to 10 years from the filing date.
Interestingly, the accounts that are included in this type of bankruptcy will
have been removed from your credit reports years before the actual record
of filing chapter 7 is removed.
- – These will
stay on your credit report indefinitely. Yes, indefinitely. The only exception
is in California where state law requires that they be removed no later than
10 years from the date it was filed.
- – The
7 year rule does not apply to defaulted student loans that are government
issued or guaranteed. These items can also stay on your credit report indefinitely.
So how can you be sure that these items will be removed when the time has come?
Each of the credit bureaus hard codes their credit reporting systems to look
for the “purge from” dates. As these dates hit their 7 or 10 year
anniversary they will automatically be removed. Unless you feel that the account
has aged past its reporting time limit, there is no need to remind the credit
bureaus that an item is to be removed. It is done automatically.
Collection
agencies will often report debts to the credit bureaus in an attempt to collect
from the consumer. This is perfectly legal as defined by the Fair Debt Collection
Practices Act (www.ftc.gov). The issue here is that, intentionally
or not, collection agencies commonly report to the credit bureaus using a newer
“purge from” date despite the fact that this is not allowed according
to sections 605a4 and 605c1 of the Fair Credit Reporting Act. The result of
this misreporting is that the collection item will remain on the credit file
for greater than 7 years.
If you feel that you have a collection account that has been reported for more
than 7 years from the date your creditor began sending you collection notices
you should contact the credit bureaus and dispute the account as “outdated.”
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Industry consolidation has whittled what used to be scores of local and regional
credit bureaus down to the three that we know of today: Equifax, TransUnion
and Experian (Experian is the company formally known as TRW Credit Services).
There was a day when you actually had a local credit bureau that would sell
your credit file to lenders in your geographic locale. Over the past 2 decades
the “big three” gobbled up these smaller credit bureaus in an effort
to become truly “national” in their coverage. What this means is
that if you lived in Miami all your life and then moved to Anchorage that your
credit report would still follow you despite all of your credit having been
issued when you lived in south Florida. The benefit of these national credit
bureaus is that you won’t lose any of your solid credit management history
simply because you’ve moved to another part of the country. Likewise,
moving to another part of the country will not rid you of any negative credit
reporting challenges that you may have faced in the past. Even if you moved
from the US to Canada (or vice versa) your credit history will still follow
you.
And, oh yes, they do differ. Equifax, TransUnion and Experian are three separate
companies who compete against each other. As such, they do not share their information.
It is very unlikely that your credit reports are the same at all three credit
bureaus. There are three primary reasons why not:
- – While some lenders do report your credit
information to all three credit bureaus, this isn’t mandatory. There
are almost always going to be omissions in your credit history at one or more
of the credit bureaus.
- –
The lenders that do report to all three credit bureaus do so by sending data
tapes to them each month. The problem is that the credit bureaus don’t
receive them at the same time and don’t “run” them at the
same time. As such, your account information will generally be different depending
on the time of the month.
-
– When you applied for that credit card or auto loan your lender most
likely chose to pull only one of your three credit reports. This means that
the “inquiry”
is only going to show up on one of your three credit reports. The exception
to this rule is a mortgage application. Most mortgage lenders will pull all
three of your credit reports during their loan processing practices.
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At Credit.com we will always advise you to pay off your debts, delinquent or
otherwise. If you have a judgment on your credit report then it serves you well
to pay it off. Here’s why:
- As a matter of fact, some
lenders will require that you pay off delinquent obligations before they will
approve your loans. You might as well do it sooner rather than later so you
look proactive rather than reactive.
- Since credit
scoring is used in almost all of your credit transactions it’s in your
best interest to maximize your scores by paying off your past due obligations.
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Most of them will eventually make it to your credit reports if you refuse to
or cannot make your payments. It goes without saying that most of your traditional
credit goes on your credit reports; auto loans, mortgages, credit cards, student
loans and retail store cards. The following are some “non traditional”
types of credit that don’t make it to your credit reports: utilities,
cellular phone service and doctor’s bills. These credit items generally
won’t show up on your credit reports unless you stop paying them. Once
you stop paying them they’ll likely be sold off to third party collection
agencies that will most definitely report them on your credit files. It’ll
take a while, but they’ll eventually end up on your files…for seven
years from the date of last activity.
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A low score is a product of poor credit management meaning that your credit
history reflects that you are missing or have missed payments and/or you are
in too much debt. These two occurrences will make it very hard to earn a high
score because they drive about 65% of the “points” in your credit
scores.
The only way to rebuild your credit scores is to address why they are low in
the first place. Sounds obvious but you’d be surprised how many people
take a “shot in the dark” approach at rebuilding their credit scores.
Or, they are guided by misinformation and/or unscrupulous individuals that promise
a better credit score in exchange for a fee. Formulating a plan to rebuild your
credit scores is not difficult. Here’s how to do it:
- –
In order to do this you will need to get all three of your FICO credit scores
and the credit reports from which they are derived. You can access your FICO
scores and credit reports for a fee at www.myfico.com
-
– Reason codes are the four explanations as to why your scores aren’t
higher than they are currently. They are delivered along with your scores
whenever a lender requests it. For example, one of your reason codes might
be “Serious Delinquency” or perhaps “Amount owed on accounts
is too high.”
- – After reviewing your
reason codes you may realize that a plan to rebuild your scores may take longer
than you’d like. A low score caused by delinquencies will take time
to rebuild because delinquencies stay on your credit files for years. However,
as these delinquencies age, their impact on your scores will lessen and your
scores will increase.
- – If you’ve
filed bankruptcy or have serious delinquencies, the best way to rebuild your
score is to jump right back in and establish new credit. But this time you
have to manage your accounts more responsibly. Make your payments on time
and don’t use up more than 20% of the available credit limits on your
credit cards. If you can do this then your scores will increase much faster
than simply waiting for your delinquencies to fall off your reports.
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It depends. According to the Fair Credit Reporting Act (www.ftc.gov)
you have the right to ask that the information on your credit reports be verified
as accurate and not outdated. The credit bureaus have 30 days to complete the
verification process or they must remove or change the information to coincide
with your dispute. The legitimate players will assist the consumer with crafting
and submitting dispute letters although the consumer, at no cost, can do this
on their own. Compare using one of these “letter” services to hiring
a company to change your oil. Sure you can do it yourself for a fraction of
the cost…but do you really want to?
From this point forward is where it gets a little fuzzy. Disputing data that
you know to be accurate isn’t considered a legitimate dispute. And, the
credit bureaus are likely to validate it as accurate and leave it on your reports.
There are no legitimate methods for “repairing” accurate credit
data that you simply don’t want on your credit reports.
Beware the company or individual who guarantees that they can remove delinquencies
or create a new credit report in your name. These are not legitimate practices
and are illegal in most states.
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Developing your credit score comes naturally as a result of building your credit
history. You’ve heard the saying “if you build it they will come?”
It applies to credit scoring as well. If you build your credit history then
your score will come shortly after followed by more creditors that will want
your business. The credit scoring models are looking for two things before they
will “score” your credit files: age and activity. You have to have
at least one account that is greater than 3 to 6 months old and at least one
account that has been reported to the credit bureaus within the last 6 to 12
months. The same account can qualify you for a score. So, a credit report with
one account open for 9 months that has reported to the credit bureaus within
the past 30 days will qualify for a score. Once you’ve built a score,
the challenge is to maximize it, which is a question for another day.
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There is good news. Pulling your own credit report is considered a “consumer
disclosure” request and therefore your scores will never be impacted.
If, however, you are getting your credit reports from a friend at a mortgage
company or at an auto dealership your scores will be impacted. The reason is
that their “credit report access” accounts are not set up for consumer
disclosure. They are set up as lenders so the “pull” will count
against the consumers score. Read on…
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This is called a credit inquiry. Anytime a creditor or anyone else accesses
your credit report it posts an inquiry. This is a record of who pulled your
credit report and on what date. The credit bureaus are required to keep a complete
list of all inquiries into your credit report for, in most cases, 24 months.
According to credit scoring research, consumers who are actively shopping for
credit are higher credit risks than consumers who are not. This makes common
sense. Think about this: would you rather lend money to someone who is applying
all over town or to someone who applies only when they need credit? Since there
is a correlation between shopping for credit and being a higher credit risk
an inquiry will, in some cases, lower your credit score.
Don’t worry too much though. The FICO scoring models have logic built
into them that addresses “rate” shopping for auto and mortgage lending.
The models are smart enough to identify whether you are shopping for the best
interest rate by comparing creditors and whether you are out trying to open
many accounts in a short period of time.
The actual number of points that an inquiry is worth is a closely guarded secret.
However, it’s safe to say that only those who are “excessively”
shopping for credit will be seriously damaging their scores. The moral of this
story is to shop and apply for credit only when you need it and, optimally,
only after you have gotten your credit and scores in good order.