Bankruptcy
One of the great myths about bankruptcy is that it erases bad credit history. It doesn't.
Declaring bankruptcy frees you from paying all or part of the debt you owe. The status of accounts included in the bankruptcy will be updated to reflect that fact, but the accounts will not be deleted from your credit report.
Chapter 13 bankruptcy remains on your credit history for seven years. Chapters 7 and 11 are reported for 10 years.
Credit accounts may be deleted at different times depending on their status prior to being included in bankruptcy.
For example, an account that was current when you declared bankruptcy will remain on file seven years from the date it was included in bankruptcy.
An account in collection when you declared bankruptcy still will be deleted seven years from the original delinquency date that led to the charge off, so it may be deleted before the bankruptcy is.
Bankruptcy isn't an easy way to escape a bad credit history. It doesn't erase your credit report so you can start over with a clean slate. It does stop collectors from calling, but creditors stop calling, too.
Credit repair organizations
The most reliable help for restoring credit will come from Father Time. There really is no way to "repair" a credit report when the negative information on it is accurate – except through the passage of time.
Bringing your payments up-to-date and keeping them current is the best advice I can give you. Eventually, the negative information on your credit report will be deleted, and only the positive information will remain.
In the meantime, don't lose hope. You still may be able to obtain credit. As soon as you pay your debts, you begin to rebuild your credit history. Adding a string of on-time payments will counter those old delinquencies.
After a year or two of keeping your account payments current, get a copy of your credit report and talk to your creditors about it. They may be willing to extend you credit based on the responsibility and reliability you will have shown since overcoming your financial problems.
So-called "credit repair clinics" may charge you more than $1,000 for their services, but you can do for free everything that they can do legally.
In fact, such businesses are regulated by federal laws because of questionable past practices such as:
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telling consumers to change their identity when applying for credit. (Consumers who followed this advice committed fraud.)
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advising consumers to dispute accurate information. (Consumers who did this broke the law.)
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going out of business and reopening under another name. (This often cost clients of out-of-business clinics hundreds of dollars with no results.)
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requiring consumers to sign contracts, then turning the accounts over to collection agencies when the consumers didn't pay. (So much for "repairing" credit.)
In addition to hurting their own clients, credit repair clinics cause inconvenience and delays to all consumers.
For example, credit grantors have to ask for more proof when you have a real fraud situation. They have no way of knowing you are not just another credit clinic case trying to remove accurate information by claiming fraud.
Credit clinic clients inundate credit bureaus with redundant and frivolous credit disputes. In fact, credit bureaus estimate that as many as 40 percent of all disputes come from these clients. That takes away the time and attention credit bureaus can devote solving the problems of consumers with legitimate disputes.
If you find inaccurate information on your Experian credit report, we'll be happy to help you remove it. With each credit report we provide, Experian includes instructions on how to dispute inaccurate information.
You certainly don't need to invest hundreds or thousands of dollars to correct inaccurate information on your credit report. Your only cost may be for a postage stamp.
Deleting information
Figuring out when negative information is removed from your credit report can be very confusing, and understandably so. Here is some help:
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Delinquencies (30 – 180 days): Can remain seven years from the date of the initial missed payment.
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Collection accounts: Remain seven years from the date of the initial missed payment that led to the collection (the original delinquency date). When a collection account is paid in full, it will be marked "paid collection" on the credit report.
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Charged-off accounts: Remain seven years from the date of the initial missed payment that led to the charge off (the original delinquency date), even if payments are later made on the charged-off account.
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Closed accounts: Closed accounts are accounts that are no longer available for further use. Closed accounts may or may not have a zero balance. Closed accounts with delinquencies remain seven years from the date they are reported closed, whether closed by the creditor or by the consumer. Positive closed accounts remain 10 years.
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Lost credit card: If there are no delinquencies, credit cards that are reported lost will continue to be listed for two years from the date the card is reported lost. Delinquent payments that occurred before the card was lost are reported for seven years.
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Bankruptcy: Chapters 7, 11, and 12 remain for 10 years from the filing date. Chapter 13 remains seven years from the filing date. Accounts included in bankruptcy will remain seven years from the date they were reported as included in the bankruptcy.
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Child support judgments: Remain seven years from the date the judgment is filed.
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Civil and small claim judgments: Remain seven years from the date the judgment is filed.
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City, county, state, and federal tax liens: Unpaid tax liens remain 15 years from the filing date. Paid tax liens remain seven years from the paid date of the lien.
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Inquiries: Most inquiries listed on your credit report will remain for two years. All inquiries must remain for a minimum of one year from the date the inquiry was made. Some inquiries, such as employment or preapproved offers of credit, will show only to you.
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Positive information: Positive open accounts will remain indefinitely and paid positive accounts remain 10 years, making your credit report a great benefit for you in obtaining and using financial services. Negative information is purged from your credit report so that if you have credit problems you will have an opportunity to build a good credit history over time.
Disputing information
You can now dispute information quickly, effectively and cost free at Experian, Equifax and TransUnion.
Once you have obtained your credit report, either online or by mail, go to the Disputes section:
and follow the instructions provided.
Disputing online is the fastest way to address any concerns you have about the information in your Experian credit report.
If you need assistance with your dispute, you can call them once you have your report in hand. You will usually need to enter your report number when you call.
Disputing online or by telephone is much better than trying to dispute information by mail. Here are a few concrete issues related to the problems letters cause with providing good service:
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Letters with sloppy handwriting and poor spelling and grammar are hard to read and can make it difficult for Experian to understand exactly what is being disputed, causing the disputes to be entered incorrectly.
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Sometimes letters simply don't explain the problem clearly, even if they are typed and grammatically correct.
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Letters take a long time to mail to. Then they take more time to open, read and enter into their systems before the dispute can be initiated.
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Disputing online is much more efficient and effective. Calling is the next best alternative.
Remember, to dispute information you must first get a copy of your personal credit report directly from the reproting agency you are disputing the information with. The report includes instructions for disputing information online and a toll-free telephone number for you to call.
Divorce and credit
Going through divorce is very difficult. Not addressing important credit issues can make it even harder.
There are two things that are important to understand about your credit during the divorce process.
First, the only information about your spouse that should appear on your credit report is their name. All other personal and account information should belong to you.
Second, joint accounts are the responsibility of both partners and appear on both your credit report and your spouse's.
Don't assume all of your joint accounts are closed or that you no longer share responsibility for them.
Order a copy of your personal credit report and carefully review it. Then you will know for sure.
Contact any creditors who still list joint accounts. They must agree to absolve one of you from responsibility for any outstanding debt and can tell you how to remove one spouse's name from the account.
Your divorce decree does not affect the credit contract you entered into during your marriage. Both you and your ex-spouse agreed to take full responsibility for the debt. Only the creditor can change the contract.
The status of the joint account will be updated automatically if it is closed or will be removed from your report if you no longer are responsible for the debt.
Wait a few months after the divorce is final and get another copy of your credit history. By then, the divorce and all of the associated changes should be reflected in you credit history, and the name of your ex-spouse should be removed. If not, a credit agency representative will be able to help you work through any problems.
Fraud and identity theft
Credit reporting agencies can add fraud alert and fraud victim statements to the credit histories of people who have reason to believe or who know they are fraud victims.
The statements tell lenders to take extra precautions when considering an application because there is a risk that fraud is being perpetrated. A fraud victim statement asks the lender to call you at a telephone number you specify before granting credit in your name.
The fraud alert and fraud victim statements are to be used only be people who are or truly believe they may be fraud victims. The statements tell lenders that there is significant risk in approving an application in the person's name, so they become much more stringent. In fact, they often won't approve the application at all, particularly preapproved offers or applications for instant credit.
Some lenders today even automatically freeze your existing accounts for a period of time as soon as they see the fraud alert statement. Their intent is to prevent an identity thief from making charges on your accounts. That means you can't charge anything either.
For true fraud victims, not being able to get credit is a significant but bearable inconvenience. For those who aren't truly victims, not being able to get the credit you need is more than just an inconvenience.
If you have reason to believe you may be a fraud or identity theft victim, you can have a security alert added to your credit history by calling one of the three reporting agencies fraud assistance toll free number:
Experian: 1 (888) 397-3742
Equifax: 1 (888) 766-0008
TransUnion: 1 (800) 680-7289
A report will be sent to you. If upon reviewing the report you find evidence of fraud or identity theft, you can have a victim statement added by calling the telephone number on the report and asking a representative for assistance.
Information in a credit report
To get all of the information in your credit report, you must order a report directly from Experian, Equifax and TransUnion.
The federal Fair Credit Reporting Act prohibits sending everything to lenders, so the report you get directly from Experian includes everything the lender gets plus some additional information.
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The report you get directly from Experian, the consumer disclosure, includes the following information not received by creditors:
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Inquiries resulting from your request for the report, from reports obtained for employment purposes, and from creditors' review of your credit history to make preapproved credit offers or to monitor existing accounts you have with them.
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Dates indicating when negative information will be removed from your credit history.
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Information for contacting Experian consumer assistance representatives.
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Notices of your consumer rights as specified in both federal and state laws as they apply to where you live.
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You also receive the same information sent to your creditors, including:
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A summary of your accounts and their status.
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Individual account information.
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Inquiries resulting from your application for credit, housing, or insurance.
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Identification information including your name, nicknames you have used to apply for credit, your Social Security number and any variations reported to Experian, addresses reported to Experian, and date of birth.
Inquiries
Recent inquiries concern creditors because they may indicate you have added debt they don't know about because there it hasn't yet been reported to the credit bureau. That's why you often are asked to explain recent inquiries when you apply for a mortgage.
The phrase "too many inquiries" is tossed around a lot, but really is a very minor factor. It refers to recent inquiries and may mean as few as two or three in the past month. The older the inquiry, the less important it is.
Your creditors only see inquiries from credit transactions you initiate. Inquiries resulting from preapproved credit offers aren't provided to creditors and don't affect your creditworthiness.
However, if you accept the offer, the creditor can again review your credit history. The resulting inquiry will be provided to creditors because you then have applied for credit.
Still, inquiries almost never cause you to be declined unless there are other significant issues with your credit history.
Ordering a credit report
There are a number of ways to get a copy of your personal credit report. What method to use various depends on your situation.
The following information should help clarify how to get your credit report depending on your circumstances and what, if any, fees are involved.
To request a copy of your credit report:
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Online:
Go to a
Products section to select the consumer credit product that best meets your need.
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U.S. mail delivery:
Call 1 888 397 3742 (1 888 EXPERIAN) and follow the automated instructions. There will be a $9 fee for all reports unless otherwise mandated by law.
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State mandated fees
State laws mandate different fees for their residents. Those states and fees are:
- California: $8 per copy
- Colorado: 1 free report each calendar year; $8 per copy thereafter
- Connecticut: $5.30 for the first copy each calendar year; $7.95 per copy thereafter
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Georgia: 2 free copies each calendar year; $8 per copy thereafter
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Hawaii: $9.36 per copy
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Maine: 1 free report each 12-month period; $5 per copy thereafter
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Maryland: 1 free report each 12-mnth period; $5.25 per copy thereafter
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Massachusetts: 1 free report each calendar year; $8 per copy thereafter
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Minnesota: $3 per copy
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New Jersey: 1 free report each calendar year; $8 per copy thereafter
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New Mexico: $9.45 per copy
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New York: $9.74 per copy
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Pennsylvania: $9.63 per copy
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South Carolina: $9.45 per copy
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South Dakota: $9.54 per copy
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Texas: $9.74 per copy
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Vermont: 1 free report each 12-month period; $7.50 per copy thereafter
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Washington: $8 per copy
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Washington, D.C.: $9.52 per copy
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West Virginia: $9.54 per copy
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As required by the federal Fair Credit Reporting Act:
Complimentary reports requested under the conditions mandated by the federal Fair Credit Reporting Act will be delivered by U.S. mail.
- To request a report if you believe you may be a victim of fraud, call 1 888 397 3742 (1 888 EXPERIAN) and select the fraud option. Experian will automatically add a temporary security alert to your credit history and mail a copy of your credit report to you.
- To request a report if you have been declined credit, insurance, housing or employment, or have had other adverse action taken within the last 60 days as a result of information in your Experian credit report, call 1 888 397 3742 (1 888 EXPERIAN) and follow the automated instructions, or write to the address provided by the lender in the adverse action letter.
- To request a report if you are unemployed and seeking employment within the next 60 days or if you receive public welfare assistance send a request in writing to:
Experian
P.O. Box 9530
Allen, TX 75013
You must certify in writing that you are unemployed and seeking employment within the next 60 days or that you are receiving public welfare assistance.
Falsely claiming that you are unemployed and seeking employment or that you receive public welfare assistance in order to obtain a complimentary copy of your credit report is fraudulent and subject to criminal prosecution that could result in up to one year in jail and a $2,500 fine.
Risk scores
My first piece advice when talking about risk scores has nothing to do with the risk score number. The first thing you should do is get a list of the risk factor statements that most affected the score at the time it was calculated.
The second thing you should do is get a copy of your personal report directly from Experian and review it.
As you look over the report, compare the information in it to the risk score factors provided by the lender. Doing so should give you a much better feel for what information in your credit history is affecting the risk score models. Addressing those issues puts you in control of improving your creditworthiness and, therefore, the risk score.
For immediate access to your credit report and score, order online. Select the consumer credit product that best meets your needs. And yes, you should get your personal report from the other two credit reporting agencies.
Risk scores not part of your credit report
Now, about the risk score numbers. You won't find them on your personal credit report because they are not part of your credit history. They are an analysis of your credit history and are calculated by the lender, or at the lender's request, when the report is sent.
Often, risk scores are printed by the lender along with the credit report, so it appears the scores are part of the report. Unfortunately, this has resulted in the misperception that risk scores are part of your credit history just like an account. They're not.
Many models, many scales and meaningless numbers
There are many, many different models that analyze risk for a wide range of credit decisions. General creditworthiness and bankruptcy risk are two examples. There also are models specific to mortgage lending, auto lending, credit card decisions and other industry-specific and lender-specific requirements.
There is an equally diverse number of scales for those various risk analysis models, so a number alone doesn't tell you anything. On one model a high score is best. On the other, the lower the score the better.
If you go to a credit reporting agency and ask, "I got a 745, what does that mean?" the representative will tell you they don't know. What model, what scale, and how does the lender interpret the model are all questions credit reporting agencies don't have answers to.
That's where risk factors come in.
Risk factors: helping you get control
The risk factors are all-important. They tell you what from your credit history most influenced a risk score produced by a particular model and are generated every time a risk score is calculated. Understanding the risk factors gives you control over your creditworthiness and, therefore, the risk score – no matter what risk score model is used.
Unlike the numbers, the factors tend to be relatively consistent from risk model to risk model. That's because the things that make you creditworthy – or not – are pretty much the same regardless of how they are measured.
Risk factors are listed in order of importance
Keep in mind, the risk factors usually are listed in order of importance. Inquiries almost always are listed last, or very nearly last, as in your situation.
Inquiries indicate you may have additional debt not yet included in your credit history. If you already are a marginal credit risk, that unseen debt can push you over the edge.
The models have to list three or four factors. When you are a good credit risk, inquiries likely are listed because they are the only thing left.
Risk factors aren't good or bad
(They just sound mean)
Another very important thing to understand about risk score factors is that they are neither good nor bad (although they usually sound pretty negative). The risk factors simply indicate the things that most influence the particular risk score at the moment it was calculated.
As mentioned earlier, risk factors are generated every time a risk score is calculated. So even if you were a perfect credit risk (no one is), a list of three or four factors would be generated, telling you what from your credit history most influenced the score at that moment.
Time is on your side
Time is essential to improving your credit-worthiness, which is reflected by risk scores.
It is very unlikely that making a single change or even several changes to your credit history will instantly improve a risk score.
The bottom line is that risk scores are simply a representation of how you manage your credit. To change scores you have to change your behavior over time.
Becoming a better credit manager makes you a better credit risk, and risk scores, whatever risk they measure, will get better. Managing your credit better is good for you and for your lenders.
Who can get your credit report?
The federal Fair Credit Reporting Act lists specific permissible purposes for obtaining a credit report.
Under the FCRA, a credit report may be obtained only:
- when authorized by the consumer in writing.
- when there is a legitimate business need in connection with a business transaction initiated by a consumer.
- when a consumer applies for credit.
- for the review or collection of a consumer's account.
- to review a consumer's account to determine whether the consumer still meets the terms of the account.
- for making "prescreened" offers of credit.
- for portfolio analysis of existing credit obligations.
- for employment purposes, including hiring and promotion decisions, when the consumer has given written permission.
- for underwriting insurance when a consumer has applied.
- for use by state and local officials in connection with determination of child support payments.
- to determine a consumer's eligibility for a government license or other benefit when the law requires consideration of the consumer's financial responsibility.
- when ordered by a court or federal grand jury subpoena.
It is not always necessary for a business to get your permission before reviewing your credit history. The prescreened or preapproved offers and for analysis of a businesss overall portfolio are examples of times you may not give your express permission.
The only time your written permission is required is for employment purposes. In most other instances, though, the application includes a clause explaining that by applying you are giving the business permission to review your credit history.
Choose a real estate agent.
Decide what features you want.
Make a home-shopping "checklist".
HUD
