What does my credit score mean?

The range of possible credit scores is 330-830. Most individuals have credit scores between 600 and 750. A credit score over 700 is usually considered “good.” While a credit score below 625 is usually considered “bad.”

 

Who creates a credit score?

 There are three credit reporting agencies. They are Experian, Transunion and Equifax.

 

What does a credit score take into account?

While a credit report shows all your recent credit history, your credit score takes into account risk factors and provides a score based on those risk factors. Each of the three credit reporting agencies has their own algorithm for determining your credit score. According to Equifax, the following are among what is taken into account when determining your credit score:

  • The number of accounts you have.
  • The types of accounts.
  • Your available credit.
  • The length of your credit history.
  • Your payment history

 

How will different actions (paying off a credit card, defaulting on a loan, etc.)  affect my credit score?

Because each credit reporting agency has their own algorithm for producing a credit score, there is no clear cut answer. Most actions will either hurt or help your credit score, but the actual number your score changes depends on the other things in your report.  Generally, the higher your credit score the harder it is to make it higher.  Both Experian and TransUnion suggest paying all bills on time is the most heavily weighted factor they use in determining your credit score.  For example, paying your bills on time accounts for 30-40% of your credit score from Experian.

 

My house is in foreclosure.  Is it better for my credit score to let the foreclosure happen, try to do a short sale, or try to give the bank a deed in lieu of foreclosure? 

The effect of a short sale or deed in lieu of foreclosure depends on how the bank reports the action to the credit reporting agencies and also how long you’ve been in default before the transfer of the property.  Regardless, a foreclosure is the worst for your credit report of the three.

For a deed in lieu or a short sale, it is rare for a bank to report a loan as “paid” when, in fact, it has been paid less than the amount due. If the bank does report the loan as “paid” this will be positive for your credit score.  However, generally, a bank will report a loan as “settled” when it has taken a deed in lieu or allowed a short sale.  When an account is reported as “settled” it negatively affects your credit score.  While not as bad as a foreclosure, if you have been behind on your payments for a long time before trying a short sale, or deed in lieu, then the effect on your credit can still be severe.

 

How can I improve my credit score?

TransUnion suggests taking these 7 steps to improve your credit score:

  • Pay all bills on time.
  • Keep balances low as a percentage of total credit limit. For example, a $1,000 balance on a card with a credit limit of $4,000.
  • Apply for new credit sparingly. Frequent applications for credit can hurt your score.
  • Maintain a good mix of credit. For example a home loan, a student loan, a car loan and a credit card instead of four credit cards.
  • Think twice about closing credit cards that you’ve always paid on time or have always kept a low balance on.  These credit lines show a good pattern of reliability, by closing them you remove a part of your “good” credit.
  • Monitor co-signed and joint accounts monthly.  If the person you’ve co-signed for has been late on their payments it will be reported on your credit report as if you were late on payments.
  • Review your three credit reports often.

 

How long will negative events stay on my credit report?

Generally, negative credit events can remain on your credit report for 7-10 years.  After that, they are considered obsolete and must be removed from your credit report.  Below are some specific examples.

Bankruptcy– Usually 10 years for Chapter 7 bankruptcy, and 7 years for a Chapter 13 bankruptcy, however a Chapter 13 can stay on your credit report for up to 10 years.

Unsecured Debt that I have stopped paying on, and the lender “charged off” the account: 7 years

Accounts that have been closed by the creditor: If closed negatively by the creditor then 7 years; if closed positively, by the debtor then at least 7 years, maybe more.

Accounts that have been sent to a collection agency:  7 years

Business Inquiries into my credit rating: 7 years

Civil Judgments entered against me for money due: In Oregon and Washington, civil judgments can generally remain on your credit report for 20 years, which is how long a civil judgment remains valid and enforceable.

Late Payments I made on an account: 7 years

Tax liens– Paid tax liens can remain on your credit report for 7 years.  Unpaid tax liens may remain on your credit report indefinitely.

 

What rights do I have under the Fair Credit Reporting Act (FCRA)?

The Fair Credit Reporting Act provides certain rights for consumers in regards to their credit reports. Some of the most important are:

  • If you’ve been denied insurance, credit, employment because of your credit report the entity that took that adverse action must tell you why you were denied and provide the name, address and phone number of the agency that provided that information.
  • Every consumer is entitled to one free disclosure of their report per 12 month period.
  • Consumers may request their credit score but the credit reporting agency may charge for that service.
  • If information on your credit report is inaccurate, incomplete, or unverifiable the reporting agency must remove or correct it within 30 days
  • Consumer reporting agencies must remove most material that is older than seven years, except for bankruptcies, which must be removed after ten years
  • Most employers (and potential employers) do not have the right to access your report without your written permission
  • Consumers can block information related to an identity theft from appearing on their credit report.
  • Consumers have additional access to free credit reports when there has been identity theft.

For more information see: http://www.ftc.gov/bcp/consumer.shtm

 

If you believe that your rights under the Fair Credit Reporting Act have been violated, you can talk with us, and/or schedule a free consultation with our office, by clicking here.

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