NEGATIVE CREDIT CAN COME WITH SERIOUS PROBLEMSYour credit report is a snapshot of your “consumer character” and as such, can have some pretty bad implications with the wrong information. Our lives for the most part revolve around the decisions we make and we are presented with those decisions daily, sometimes multiple times a day. Poor decisions, such as overspending or over extending yourself from a credit perspective can have a lasting effect on you and your ability to continue making similar decisions at a later date and time, sometimes, in the case of a bankruptcy, up to ten years. So to an extent, your credit report is direct reflection of the consumer freedom you will enjoy or with negative credit, it will be a direct reflection of your lack of freedom.Negative credit can affect you in many ways, from getting housing, a car loan, a job, and even security clearance. If you have been turned down for a mortgage, a car loan, an apartment, or a job because of your credit, you know from personal experience how a negative credit report can painfully impact your life. Unfortunately, there isn’t anything that can solve these problems quickly. However, there is a specific process and laws in effect that can help you to start fixing your credit. There are two ways to do this: 1) hire someone to do it for you, or 2) do it yourself and spend the time necessary figuring it out and preparing the necessary documents. When doing it yourself, you may want to seek the guidance of a professional to be sure you did it correctly.THE GOOD, THE BAD AND THE UGLYLet’s take a look at what’s good and what’s bad. First, let’s set the parameters to which we are evaluated. The FICO system, a system that summarizes your credit risk for lenders, produces a score between 300 and 850 and we all fall somewhere in that range. The interest rate you get when you apply for a loan will depend on this score and that can be worth thousands over the life of a loan.
Scenario #1, if you have not had any negative marks against your credit, and by negative we are referring to collections activity, late payments, tax liens, judgments, etc. in the last 24 months and no bankruptcy or foreclosure in the last five years with a credit score above 700, you have a good credit profile.
Scenario #2, if your credit score is below 630 and you have all or even some of the items mentioned above, you have a bad or less than favorable credit profile.
Scenario #3, if your score falls somewhere in the middle of the scores above and you have some of the items mentioned above, you have a mediocre credit profile.
In the credit scoring business, different scoring companies use different scoring models. They do this because credit isn’t just credit – there are mortgages, consumer credit, and revolving credit and installment loans. Scores will and should vary between the different scoring methods depending on the facts. On top of general negative items associated with your credit report, there are other variables to consider and they all have a different weight when calculating your score.
Payment History – 35%
Amounts Owed – 30%
Length of Credit History – 15%
Types of Credit in Use – 10%
New Credit – 10%
HOW TO READ YOUR CREDIT REPORTYour credit report contains a wealth of information about your financial activity. Although credit reports are not easiest reports to understand, the bureaus providing the reports have tried to make them as user-friendly as possible.Personal InformationThe first section of your report will cover basic information like your name, address, and place(s) of employment. This section is used to identify you as the reports owner. Most likely, previous addresses and places of employment will also be included.In this section, it’s not uncommon to have misspellings of your name or variations thereof. Because these misspellings and variations usually link you to a piece of credit, credit reporting agencies will usually leave these variations. It’s your job to ensure your personal information is identifying you and not someone else.Account HistoryThis section of your credit report contains the majority of the information about your credit. This section lists each of your accounts and details how you paid on each of them. Your account history will be extremely detailed and will most likely be the hardest section to read; however, it’s important you read through all of it to make sure the information is being reported accurately.As far as collection accounts, they may appear as part of the account history or in a separate section, usually labeled negative credit. Where it appears will depend on the company providing your credit report. Within the account history, there will be several pieces of sub-information.
Company name of the institution reporting the information.
Account number associated with the account. The account number may be scrambled or shortened for privacy purposes.
Type of account, i.e. revolving account, education loan, auto loan.
Terms of repayment. Installment loans include the number of payments. Revolving accounts may leave this section blank or as “revolving”.
Date opened. The month and year the account was established.
High credit is the highest amount ever charged on the credit card. For installment loans, high credit is the original loan amount.
Credit limit or loan amount.
Balance. The amount owed on the account at the time data was reported.
Past Due. Amount past due at the time the data was reported.
Account status. Indicates the status of the account, i.e. current, past due, charge-off. Even if your account is current, it might contain information about previous delinquencies.
Payment history. Indicates your monthly payment status since the time your account was established.
Date reported. The last time the data was updated by the creditor.
Public RecordsThis section will include information like bankruptcies, judgments, tax liens, state and country court records, and, in some states, overdue child support. Depending on the type of account, a public record may remain on your credit report between seven and ten years, ten years being reserved for bankruptcies. This section is a collection of the bigger mistakes, not criminal arrests or convictions but enough to severely damage your credit.Credit InquiriesThis section provides a detailed list all parties who have accessed your credit report within the past two years. While your version of the credit report lists several credit inquiries, not all of these appear on the lenders’ and creditors’ versions. Only “hard” inquiries are shown to lenders. These are inquiries made when a lender checks your credit report to approve your credit application. Your version will also include “soft” inquiries consisting of inquiries made by lenders for promotional purposes.Initially, if you need help, try your loan officer if you are applying for credit and see if they will take some time to explain it to you. Most of them will try to help as best they can, especially if you are trying to repair your credit because the loan officer would eventually benefit when he originates a loan for you. If you were not working with a loan officer and you are trying the DIY credit repair method, you might consider a free consultation with a credit repair company to learn the basics. They will assist you in understanding your credit report and should tell you some of the advantages and disadvantages of doing credit repair on your own or through a credit repair company.