Understanding Your Credit Reports
Does paying off past-due accounts neutralize their negative status?
No. Many people believe that if they pay off an account the previous negative information is deleted from their credit reports. Once an account is late, sent to collection or charged off the negative information will remain until the statutory amount of time has run. If you pay off the account or become "current" your credit is slightly better than if you did not ever pay, but the previous negative information remains.
What's the worst thing that can appear on my credit report?
There are eight things that look bad on your credit report. It is difficult to figure what is worst because lendersA person or company that offers to lend money to a borrower for a given period of time. assess information differently.
Some common negatives include: multiple searches, late paymentsA delinquent payment; a failure to deliver a loan or debt payment on or before the time agreed., defaultsFailure of a debtor to make loan repayments as agreed to in a loan contract. (paid/unpaid), judgments, bankruptcies and repossessionAfter a borrower is significantly behind on payments, a creditor takes possession of property pledged as collateral on a loan contract to pay off the remaining loan amount. orders.
Who are the credit repositories?
There are three major credit repositories (bureaus). TransUnion, Equifax, and Experian. Contrary to popular belief, they are not in any way government-affiliated. They are for profit, multi-million dollar corporations that gather and sell your private personal informationThe personal information section on your credit report includes your name (and any name variations), driver's license number, social security number, date and year of birth, spouse's name, employers, personal phone numbers and information about your residence. to creditorsOne who extends credit to borrowers., insurers, employers, landlords, and companies that solicit you for credit and insurance offers. They also sell your information to telemarketing and mailing list companies, without your permission and in most cases without your knowledge. They admit that errors occur on consumer reportsThese are consumer reports that are usually ordered by a prospective employer for sensitive jobs where background checks and security clearances are necessary., but they do nothing to correct them. It is up to the consumer to "prove" that their report is inaccurate, and take the steps to make sure everything on your credit report is in order.
What do credit repositories (bureaus) do?
Credit repositories have huge databases on the credit histories of consumers. This information is gathered and given to the credit bureausAn agency that gathers information about consumers' credit relationships and provides creditors with credit reports and scores on consumers. from creditorsOne who extends credit to borrowers. that have extended you credit in the past. For example: landlords, credit cardA plastic payment card which allows the owner to obtain goods and services without the requirement to pay cash and on credit terms. companies, the IRS, department stores, and banks. Your credit historyA record of how a person has borrowed and repaid debts. contains information that creditorsOne who extends credit to borrowers. use to evaluate and determine your ability and willingness to repay credit. Typically, credit bureausAn agency that gathers information about consumers' credit relationships and provides creditors with credit reports and scores on consumers. give the following information: Your open accounts, credit limitsThe maximum amount an individual or business can borrow in connection with a specific loan., current balancesThe total amount of money owed on a loan or credit account, or the total amount of money in a checking or savings account. In the case of a credit card, it includes any unpaid balance from the previous month, new purchases, cash advancesCash withdrawn on your credit card at a bank office or ATM. Cash advances usually carry fees and a higher APR than other charges., and any charges such as an annual fee, late fee or interest., number of late paymentsA delinquent payment; a failure to deliver a loan or debt payment on or before the time agreed., collection actions, tax liens, and whether you own your own home.
What is a credit score?
A credit scoreA credit score is a number that reflects your credit risk level, as determined by the credit reporting agency, typically with a higher number indicating lower risk. is a number that is meant to summarize your risk levelIn determining credit scores, lenders place you in a risk category that compares you to a large number of consumers with similar credit histories., as an individual consumer, as determined by the credit repositories. The higher the number, the lower the risk will be to the lenderA person or company that offers to lend money to a borrower for a given period of time.. As you apply for increased credit or attempt to make a purchase, the lenderA person or company that offers to lend money to a borrower for a given period of time. will check your ability to pay back that loan. The more negative marks you have on your credit report, the less likely you will be granted the loan or purchase you requested. Only the credit repositories know the exact formulas they use to determine these scores, which generally range from 350 (lowest) to 850 (highest), and the calculation method varies from bureau to bureau. America's Credit Doctor.com will make sure you keep your score as high as possible. There are primarily two types of scores, generic bureau-based scores and custom scores. Among bureau-based scores, the most widely used score in the financial service industry is the FICO score generated by the Fair-Isaac Company. Each credit bureauAn agency that gathers information about consumers' credit relationships and provides creditors with credit reports and scores on consumers. can also generate its own credit scoreA credit score is a number that reflects your credit risk level, as determined by the credit reporting agency, typically with a higher number indicating lower risk., such as the Experian Credit Score. The bureau-based credit scoreA credit score is a number that reflects your credit risk level, as determined by the credit reporting agency, typically with a higher number indicating lower risk.s draw on statistics from a large number of consumers across a variety of accounts. Custom scores are generated by individual lendersA person or company that offers to lend money to a borrower for a given period of time. who rely on credit bureausAn agency that gathers information about consumers' credit relationships and provides creditors with credit reports and scores on consumers. and other information, such as account history, from their own portfolios. Scores are not just used to rate the credit worthiness of consumers. LendersA person or company that offers to lend money to a borrower for a given period of time. also use scores to predict consumer response to offers sent in the mail, the likelihood that account holders will file for bankruptcy or that a consumer will move their account to another lenderA person or company that offers to lend money to a borrower for a given period of time..
What kind of information will be on my credit report?
Your credit report contains most or all of your credit accountsAny loan or debt listed on your credit report is considered a credit account. that have been active at some time within the last 7 years. They also contain any public records (Chapter 7A type of bankruptcy where debtors repay debts according to a plan accepted by the debtor, the creditors and the court. Plan payments usually come from the debtor's future income and are paid to creditors through the court systems and the bankruptcy trustee. and 13 bankruptciesA type of bankruptcy usually used by businesses rather than individuals. Used as an alternative to liquidation under Chapter 7. are reported for 10 years), current and previous addresses, current and previous names, a listing of potential creditorsOne who extends credit to borrowers. who have received your credit fileA file containing customer correspondence and statements, credit ratings, credit history and payment patterns. and any other miscellaneous information the credit repository has gathered on you. Each account listing generally has your account number, the credit limitThe maximum amount an individual or business can borrow in connection with a specific loan., your current balanceThe total amount of money owed on a loan or credit account, or the total amount of money in a checking or savings account.. In the case of a credit cardA plastic payment card which allows the owner to obtain goods and services without the requirement to pay cash and on credit terms., it includes any unpaid balanceThe total amount of money owed on a loan or credit account, or the total amount of money in a checking or savings account. In the case of a credit card, it includes any unpaid balance from the previous month, new purchases, cash advances, and any charges such as an annual fee, late fee or interest. and your previous payment history. This payment history can contain notes of late paymentsA delinquent payment; a failure to deliver a loan or debt payment on or before the time agreed., any collection or transfer history, whether the account was included in bankruptcy, and the current payment statusReflects the history of payments on an account, including any delinquencies or late payments occurring during the previous seven yearsof the account.
How can I move toward understanding my credit report?
Understanding your credit report may seem a daunting task, but that need not be the case. We have a simple layout of what all ratings indicate per item on a credit report:
| Number | Rating |
|---|---|
| R0 | Too new to rate. |
| R1 | Paying as agreed within 30 days of billing. |
| R2 | Paying later than 30 days, but less than 60 or when next payment is due. |
| R3 | Paying later than 60 days, but less than 90 or when two payments are due. |
| R4 | Paying later than 90 days, but less than 120 or when two payments are due. |
| R5 | Account is at least 120 days past dueAn account reflecting late payments or payments received after an agreed upon time for settlement. but is not yet rated R9. |
| R6 | No rating exists. |
| R7 | Paid through a consolidation order, consumer proposal or wage earner / debtA specified sum of money that is legally owed from one to another. management plan |
| R8 | RepossessionAfter a borrower is significantly behind on payments, a creditor takes possession of property pledged as collateral on a loan contract to pay off the remaining loan amount. |
| R9 | Bad debtA debt that a lender has determined the borrower is not going to repay., or placed for collection or bankruptcy |
All items on your credit report contain corresponding rating numbers which summarize the statuses of each individual account.
R-Revolving
I-Installment Loan
I0-Installment Loan with no payments yet.
What is the difference between an R1 and an R9?
"R" refers to a revolving accountAn account from which credit is automatically available up to a predetermined maximum limit as long as a customer makes regular payments., "I" refers to an individual account, and "M" refers to a mortgageA written agreement to repay a loan. account. The creditorOne who extends credit to borrowers. supplies this rating. It is their rating of you as a borrower. There are only two ratings which are not negative. A rating of "1" is good and a rating of "0" means that they don't have enough "R" history with you to rate you.
Every other rating, "2" through "9" is negative. In our experience, creditorsOne who extends credit to borrowers. don't look at these rating when you apply for financing. The creditorOne who extends credit to borrowers. usually looks at the late pays or other notations such as "charge off"Action of transferring accounts deemed uncollectible to a category such as "bad debt" or "loss." Such accounts will usually continue to be pursued by collectors, but are no longer considered part of a company's receivable or profit picture because they are unlikely to be repaid in full. or "collections." However, any rating but a "1" or "0" indicates that you have problems with the account.
What are the types of accounts being reported on my credit report?
There are several types of accounts, including:
Merchant Trade Lines
These include all regular credit linesThe maximum dollar amount that can be charged on a specific card account. such as department store cards, auto loans, mortgagesA written agreement to repay a loan., and credit cardsA plastic payment card which allows the owner to obtain goods and services without the requirement to pay cash and on credit terms.. If there is any history of late paymentA delinquent payment; a failure to deliver a loan or debt payment on or before the time agreed., or if the trade lineEach specific credit relationship with a business is tracked over time as a tradeline on your credit report. This means that you can have multiple accounts with the same bank, but your payment history will be identified separately for each account. was included in bankruptcy, charged off, or put into repossessionAfter a borrower is significantly behind on payments, a creditor takes possession of property pledged as collateral on a loan contract to pay off the remaining loan amount., the listing will be considered negative by all credit grantors.
Collection Accounts
When an account is referred to collections because of delinquency or because of a bad check, this appears on the credit reportA report containing information about a consumer's identity, credit relationships, some court actions, consumers statements and previous inquiries into that file. as a collection account. Collection accounts can appear as paidTotal number of accounts that have been paid satisfactorily or paid after having been previously delinquent. or unpaid accounts. Any type of collections account, whether paid or not, is considered very negative by all credit grantors.
Court Records/Public Records
Courts records include bankruptcies, judgments, liens, divorce, satisfiedIf a consumer has paid all the money the court says he owes, the judgment is called "satisfied." judgments, and satisfiedIf a consumer has paid all the money the court says he owes, the judgment is called "satisfied." liens. All court records, including satisfactions, are considered by all credit grantors.
Inquiries
Every time a potential credit grantor looks at your credit fileA file containing customer correspondence and statements, credit ratings, credit history and payment patterns., a credit inquiryThere are two types of inquiries. A hard inquiry is when you have applied for credit, which gives a lender permission to pull your credit report. All hard inquiries are available for all credit grantors to review. A soft inquiry is only available for you to see. It does not influence your credit score. This type of inquiry includes your request for your credit report or pre-screen inquiries for credit grantors. appears on at least one of your credit bureauAn agency that gathers information about consumers' credit relationships and provides creditors with credit reports and scores on consumers. reports. If the numbers of inquiries are few over the last two years, then there may be no negative effect on your credit worthiness. However, if there are many recent inquiries showing on your credit reportA report containing information about a consumer's identity, credit relationships, some court actions, consumers statements and previous inquiries into that file., credit grantors may become nervous and deny you credit.
How long do negative items stay on my report?
There have been reports with inaccurate items listed for well over 7 years. This can happen when the credit bureausAn agency that gathers information about consumers' credit relationships and provides creditors with credit reports and scores on consumers. make a mistake. The Fair Credit Reporting Act requires that most negative credit items must be removed from your credit bureauAn agency that gathers information about consumers' credit relationships and provides creditors with credit reports and scores on consumers. file after seven years of no activity, except for bankruptcy, which can be reported for up to ten years. The creditorOne who extends credit to borrowers. or the credit repositories can choose to have the negative credit information deleted whenever they please. Inquiries may remain on the credit reportA report containing information about a consumer's identity, credit relationships, some court actions, consumers statements and previous inquiries into that file. for up to two years. Now, this is what the repositories want you to assume: that any listings cannot be deleted. That is were America's Credit Doctor.com steps in to help. We bring to your attention the information that inaccurate or obsolete listings can be deleted.
Can I see my credit report?
Most credit grantors are not allowed by the credit bureausAn agency that gathers information about consumers' credit relationships and provides creditors with credit reports and scores on consumers. to show you your own credit reportA report containing information about a consumer's identity, credit relationships, some court actions, consumers statements and previous inquiries into that file.. But you can purchase your credit reportA report containing information about a consumer's identity, credit relationships, some court actions, consumers statements and previous inquiries into that file. from a credit bureauAn agency that gathers information about consumers' credit relationships and provides creditors with credit reports and scores on consumers. for a fee. Once you receive your credit reportA report containing information about a consumer's identity, credit relationships, some court actions, consumers statements and previous inquiries into that file., you may find that you cannot read it because the information is listed in an unfamiliar code. We will show you how to obtain your credit reportA report containing information about a consumer's identity, credit relationships, some court actions, consumers statements and previous inquiries into that file. for free or order it online. Also, beginning in June (in Texas) you shall have the right to view each of your reports once a year for free.
How much bad credit does it take to be denied credit?
Most lendersA person or company that offers to lend money to a borrower for a given period of time. look at the number of years you have worked at your present job, the number and nature of negative entries in your credit reportA report containing information about a consumer's identity, credit relationships, some court actions, consumers statements and previous inquiries into that file., the amount of credit you currently have, savings and/or current accounts with lendersA person or company that offers to lend money to a borrower for a given period of time., length of time at your present address, whether you have a telephone in you own name, and whether you own your home.
Even one small late pay (slow pay) listing may result in credit denials. Any negative credit whatsoever can become a substantial credit obstacle. There are also other factors that will play into the decision of the lenderA person or company that offers to lend money to a borrower for a given period of time.. What is your debtA specified sum of money that is legally owed from one to another. to income ratio? How long have you been with your current employer? America's Credit Doctor.com will help analyze your particular situation FREE of charge.
Why should I consider Credit Report Repair?
There is only one way to improve your credit scoreA credit score is a number that reflects your credit risk level, as determined by the credit reporting agency, typically with a higher number indicating lower risk. quickly: credit reportA report containing information about a consumer's identity, credit relationships, some court actions, consumers statements and previous inquiries into that file. repair. Adding new positive accounts to your credit reportA report containing information about a consumer's identity, credit relationships, some court actions, consumers statements and previous inquiries into that file. takes a very long time. In contrast, taking old, inaccurate, and erroneous items off of your credit reportA report containing information about a consumer's identity, credit relationships, some court actions, consumers statements and previous inquiries into that file. can have an immediate impact on your credit scoreA credit score is a number that reflects your credit risk level, as determined by the credit reporting agency, typically with a higher number indicating lower risk.. Therefore, for those consumers who do not have the luxury of time, credit reportA report containing information about a consumer's identity, credit relationships, some court actions, consumers statements and previous inquiries into that file. repair is usually the best option.
How much does bad credit cost me?
The costs associated with poor credit are difficult to calculate, but utterly astonishing once revealed. By only modestly improving your credit scoreA credit score is a number that reflects your credit risk level, as determined by the credit reporting agency, typically with a higher number indicating lower risk., you can easily realize thousands of dollars of savings in interest payments alone. A poor credit scoreA credit score is a number that reflects your credit risk level, as determined by the credit reporting agency, typically with a higher number indicating lower risk. can easily cost you thousands of dollars when making a major purchaseA purchase for a substantial amount of money such as a refrigerator, car or home. such as a car, a home or even insurance.
Example 1: Financing an Automobile
If you are making payments on a typical auto loan, you are probably paying between $5,000 and $9,000 more in interest just for having bad credit. See the chart below.| Credit status | Rate | Payment | Cost of bad credit |
|---|---|---|---|
| Good | 10% | $424.94 | $0.00 |
| Average | 14% | $465.37 | $4,722.54 |
| Bad | 20% | $529.88 | $8,593.30 |
Example 2: Mortgage on a Home
Bad credit in auto financing can really hurt, but it is nothing compared to the cost of bad credit when a home is involved. A typical home can cost between $50,000 and $130,000 more in interest if you are buying the home with bad credit. See the chart below.
| Credit status | Rate | Payment | Cost of bad credit |
|---|---|---|---|
| Good | 7% | $655.30 | $0.00 |
| Average | 9% | $804.62 | $50,155.24 |
| Bad | 12% | $1,028.61 | $130,791.63 |
Who looks at my credit report?
Your credit reportA report containing information about a consumer's identity, credit relationships, some court actions, consumers statements and previous inquiries into that file. is a character report about you. A credit reportA report containing information about a consumer's identity, credit relationships, some court actions, consumers statements and previous inquiries into that file. is how people, lendersA person or company that offers to lend money to a borrower for a given period of time., and creditorsOne who extends credit to borrowers. regard you. In many situations your credit reportA report containing information about a consumer's identity, credit relationships, some court actions, consumers statements and previous inquiries into that file. will actually become your identity. People will know you not by who you are, but by what is reported about you from the credit bureausAn agency that gathers information about consumers' credit relationships and provides creditors with credit reports and scores on consumers.. Obviously, those reports can be extremely damaging especially if they contain incorrect, incomplete or obsolete listings. Property managers, lendersA person or company that offers to lend money to a borrower for a given period of time., insurance companies, prospective employers, anyone who wants to know who you are can get access to your credit fileA file containing customer correspondence and statements, credit ratings, credit history and payment patterns.. America's Credit Doctor.com will re-establish your credit reportA report containing information about a consumer's identity, credit relationships, some court actions, consumers statements and previous inquiries into that file. restoring your Character.
What is a public record?
A public record is a file such as a bankruptcy, tax lienLegal document used to create a security interest in another's property., or child support that is filed at the courthouse. They are treated no differently for verificationWith regard to credit reports, verification is the process of checking the accuracy of information. purposes than any credit accountAny loan or debt listed on your credit report is considered a credit account. appearing on your credit reportsA report containing information about a consumer's identity, credit relationships, some court actions, consumers statements and previous inquiries into that file..
What is a charge off?
When you become very delinquent on an account the creditorOne who extends credit to borrowers. will probably charge it off. In a short period of time the creditor will determine that the account will not be paid and they will write it off for tax purposes. Once they minimize their loss from that account they most likely will sell that file to a collection agencyA business service employed to collect creditors' unpaid or past-due accounts. A collection agency is often compensated by receiving an agreed upon percentage of any amount collected. to decrease the loss even further. The collection agency will then use a wide variety of means to collect on the debtA specified sum of money that is legally owed from one to another..
Charge offs are very negative listings, but they can often be settled through debtA specified sum of money that is legally owed from one to another. settlement.
Can a bad credit mark actually be deleted?
Yes, they most definitely can be if they are inaccurate, incomplete or obsolete. We have seen literally thousands of deletions ranging from bankruptcies to late paymentsA delinquent payment; a failure to deliver a loan or debt payment on or before the time agreed. be deleted from credit reportsA report containing information about a consumer's identity, credit relationships, some court actions, consumers statements and previous inquiries into that file.. This is why we stand by our work.
How does divorce affect a person's credit?
When you obtained credit, you and your spouse signed a contract agreeing to pay your bills. A divorce decree doesn't change that contract. When you divorce, each of you remains fully liable for your debts. There are several ways you can prevent credit obligations from making divorce more difficult - and reestablish your own distinct credit lines after divorce occurs. You may wish to consider the following:
- Communicate with your ex-spouse. Make as clean a financial cut as possible.
- Communicate with your creditors. Decide which credit belongs to whom, then ask each company and bank that extended you credit to transfer the debt to the name of the person who will be responsible.
- During divorce negotiations, keep your joint bills current, even if you ultimately will have no responsibility for the debt. If you don't, your creditors could become more reluctant to release one party from joint liability.
- Ask the credit grantor to remove your spouse's name as an authorized user or close the joint account to additional charges.
- If your spouse runs up large amounts of debt, you should cancel as many of the accounts as possible. Inform all creditors, in writing, that you are not responsible for these debts. This may not prevent them from trying to collect, but it does show that you attempted to act responsibly.
- Upon your divorce settlement, you and your ex-spouse might consider obtaining individual consolidation loans to cover your share of the joint bills. Pay off the joint bills with your individual loans and close all joint accounts. This helps ensure you'll be responsible only for those bills you agreed to pay. It also will help you establish or reestablish credit in your own name.
If my spouse had bad credit before we were married, will that affect my credit score?
If you hold a joint credit account, have co-signed a loan or have authorized use of another person's credit, these items could affect a score if they appear on your credit report. It's important that joint account holders or authorized users understand that their credit behavior does affect the other joint account holder or main account holder. A credit account held solely in the name of your spouse, child or any other family member cannot impact your credit score. However, in community property states, all debt acquired during a marriage is considered a joint debt, regardless if the account is joint or in the name of an individual spouse.