Credit Reports

There are many reasons why you might have a low credit score. You may have gone through a rough period financially, or you may have shared credit with a spouse or family member who didnt make payments on time. Whatever the reason, the bottom line is that your bad credit history can cost you hundreds or thousands of dollars over time, in the form of high interest rates on your mortgage, car payments, or credit card bills. If your credit score is low enough, you might not qualify for any of these forms of credit at all.

If you find yourself in this position, there are steps you can take to improve your credit score. With a plan in place, you can rebuild your credit profile, get your score up and make a huge difference in your ability to get credit in the future.

The first thing you should do is get your free credit report from the three major credit bureaus Experian, Equifax, and Transunion. Due to recent legislation, you are entitled to receive a free copy of your credit report from each of these agencies once a year. The report will not include your credit score, but it will include detailed information that has been submitted to the credit bureau by your creditors over the years. The three major credit bureaus have websites which allow you to receive an electronic copy of your credit report the day you request it.

When you have your credit reports, look at the items reported and see if there are any outstanding debts, unpaid collections, or inaccurate items. Be sure to check all three reports, because the same information does not always go to all three agencies. An item reported to Experian, for example, may not be reported to Transunion.

If you find an inaccurate item on your credit report, you can contest it. Ask the creditor to remove the item, and let the credit bureau know that you are disputing it. In some cases, you can dispute an item on your credit report immediately, over the internet. During the time it takes to resolve the issue, the item will be removed from your report. You can dispute an item as many times as you like, for free.

If you have any unpaid collections, try to contact the creditor in question and make arrangements to pay the bill. Paid collections will still remain on your record for 7 years, unless you can convince the creditor to remove it. In any case, you should get a letter from the creditor confirming that the bill has been paid in full, just in case you need it in the future to make sure the paid collection is taken off your record.

Once you have repaired your past credit problems, be sure to maintain your good record by reviewing your credit report annually, and not carrying too high a balance on your credit cards. Its generally considered advisable to keep your balance below 80% of your total credit limit. Too high a balance on an existing card will kill your rating, no matter how often you pay your bills on time.

Changes to the Fair Isaac Credit Report scoring system are going to occur shortly. Individuals need to know the ins and outs of the new system to better prepare for when the changes take effect. There will be some new benefits for consumers, but until the system is in place, no one can gauge the potentially negative impact on your credit report.

New FICO Scoring System More Accurate

Initially, the three credit bureaus balked at the revisions proposed by FICO. After some negotiation, everyone is on the same and FICO says the new score will be more accurate in predicting defaults than the classic scoring system. Experts consider your FICO score the measurement of your financial health.

New Changes to the FICO Scoring System in 2009

The new formula ignores small collection accounts (amounts under $100). If a collection is sent in for a small amount it doesnt negatively impact your score. Although the amount should be paid, if a person lost track of a small bill, points will not be shaved from their score. Additionally, this scoring system is a bit more forgiving of serious credit setbacks. Some other changes include:

• *Effects of authorized-user accounts on credit scores have been reduced, but not eliminated
• *Higher penalties for late payment
• *Higher rewards for prompt payment
• *Different debt will be scored differently

New FICO Scores Determined By New Criteria

With credit becoming increasingly difficult to secure, it is important for consumers to know all the facts. FICO scores will still be determined by the following criteria:

• *Payment History 35%
• *Types of Credit Used 30%
• *Amounts Owed 15%
• *Length of Credit History 10%
• *New Credit 10%

Individuals are encouraged to pay their bills on time, avoid too many inquiries into their account, and maintain low debt balances in general. Consumers should make sure to watch their credit carefully so they are aware of how the changes affect them. Check your credit score today for free from our trusted partner, Go Free Credit.

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