Credit Scores 101
Credit bureaus are watching your payment punctuality, and other personal financial information that directly impacts your ability to qualify for a loan, and the interest rate you will be offered. A credit score of 720 or better can provide the lowest interest rates, while a score of 620 or less can result in high interest rates.
Most Common Ways to Screw Up Your Credit
1. Late Payments – Not considered late until 30 days past the due date. 60 or 90 day late payments are more negative than a 30 day late. The age of late payments can influence credit scores. Recent late payments are considered worse than older ones. More serious issues include: consumer credit counseling, collections, bankruptcy, and foreclosure.
2. Outstanding Debt – Having a large number of open accounts with balances may reduce your credit scores. Another issue is the ratio of your credit limit compared to the current balance. Using 75% of your credit limit is a greater risk than using 25%.
3. Account History – Older credit accounts can have a positive effect on credit scores, as long they are not delinquent. Having recently opened accounts could reduce your scores. Also, multiple credit inquiries are a flag indicating a possible new account.
How Do You Correct Credit Report Errors?
Incorrect information can sometimes appear on a credit report. If you believe there is a potential error on your credit report, you are entitled to dispute the accuracy of the information. The federal Fair Credit Reporting Act gives you the right to challenge inaccurate information by contacting the reporting agencies, and the company who reported the information. Under the FCRA, they are responsible to correct any errors on your credit report free of charge, and within a specific time limit.
The credit bureaus, Experian, Equifax, and Transunion, are required to investigate your dispute within 30 days of reporting the potential error. They will contact the source of the derogatory information and try to confirm the record. Providing documentation to support your claim, if you have any, can also expedite the process. If the credit bureaus are unable to confirm the derogatory information from the source, the item must be removed from your credit report, which can improve your score.
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