Monthly Archives: December 2011

Free Credit Report – How And Where To Get It

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There are several reasons why you need to keep tabs on your credit report and credit score.  These include simply keeping tabs on what your score is, learning how your score is derived, identifying problem areas with your credit score, removing inaccuracies or mistakes from your report and avoiding fraud and identity theft.  Thankfully these days it’s quite easy to get a free credit report on an annual basis (or even more frequently).  You can request your annual credit report from each of the big three credit reporting agencies (Transunion, Experian and Equifax) individually, or you can use one of the services that will provide all three agencies scores to you.  In the long run it’s your choice, I hope to give you enough information here to make your decision easier.

The Big 3 Credit Reporting Agencies and FICO

You may have heard the term “FICO Score” before and wondered how this score is determined.  It is a compilation of the three scores from the top credit agencies; Transunion, Experian and Equifax.  Each agency calculates the score a bit differently, so using a combination of all three to determine a FICO score is the most effective way for banks and other lenders to determine your credit worthiness.  The FICO score ranges from 300 to 850 and it is typically accepted that a score above 650 indicates a positive credit history.  FICO is an acronym for Fair Isaac Corporation, the company who developed the scoring system.

In addition to creating credit scores, each of the three major credit reporting agencies offer access to your free annual credit report through www.AnnualCreditReport.com.  Take note that it is only your credit report they are required by law to provide, they are not required to provide a free credit score and when requesting a free credit report that is all you get.  They also offer paid services to monitor your credit score, get credit and fraud alerts and protect yourself against identity theft with insurance.  They are also the ones to contact if you wish to put a freeze on your credit report or if you have a dispute about information on your credit report.  Overall, they are very good at what they do, although they can be a bit more expensive than other similar services.  It should be noted that in the U.S. the credit bureaus are required by law to provide consumers with their annual credit report free of charge once every 12 months.

Free Annual Credit Reports and The FACT Act

FACT Act is an acronym for The Fair and Accurate Credit Transactions Act (FACT Act) which was developed to help consumers be more aware of their credit history and to give them access to the same data that lenders look at when making a loan decision.  It is a revision of the prior Fair Credit Reporting Act which was passed in 1970 and governs the collection, dissemination, and use of consumer information, including consumer credit information.  The FACT Act allows each individual to obtain a free copy of the information in their credit file once every 12 months.  Consumers are entitled to copies of records from each of the 3 credit reporting agencies and these records are made available through a central source, currently www.AnnualCreditReport.com.  Those who do not have access to the website can also request the credit information through www.FTC.gov or by calling 877-FACT-ACT.

The FACT Act was signed into law in December 2003 and became effective on December 1, 2005.  As of that date all consumers are eligible to request a free copy of their credit report once every 12 months.

Other Sources for Free Credit Report & Scores

As far as the obligatory once a year free credit report goes, www.annualcreditreport.com is the official central source set up by the credit reporting agencies to distribute the required annual credit reports for free.  For some, this once a year report is enough to keep tabs on their credit score and credit history.  Others like to be more informed and for this group there are a number of sites that provide credit monitoring, fraud alert and identity theft protection services.  Let’s look at several of your options:

Each of the big three agencies provide credit monitoring, fraud alert and identity protection insurance for a small monthly fee. Since these are the agencies providing the scores you can be pretty sure you’ll be getting accurate, timely and complete information. They all offer free trials thru their various vendor services during their free trial. Basically asking you to try out their credit monitoring service for a given period – 7 days, 30 days, etc. In exchange, you receive a free credit report and/or score. Depending on the service, you get to see your credit data only from one credit bureau – TransUnion, Experian, or Equifax. Other vendors will provide all 3 credit bureau reports and scores for free. The big thing to remember is, although it’s your right to receive a free annual credit report, you won’t get to see your credit score for free. You usually have to pay the individual credit bureaus for this previlege. So these free trial offers do have their benefits. If you don’t feel you want to continue with the credit monitoring service, you just cancel during the trial period. Otherwise you will be charged.

Types of Free Trial Offer Services

A few are well known for their catchy television and radio advertisements.  Many only provide a free credit report from one credit bureau. While this can be useful information to have, your lenders may access more than one credit bureau for your credit data. You also have companies that are known primarily for providing identity theft protection instead of offering free credit reports. But they often have free trial offers where you can try out their identity theft service and you receive a free credit report and score in exchange.

As mentioned before, some people will find that they don’t require a complete credit monitoring solution and the once yearly free report is sufficient for them. But many credit experts believe it makes more sense to monitor your credit history on a semi-annual or quarterly basis. If you feel like you would sleep better at night with a solution like this in place then the suggestions above are a great place to start your search.

Whatever your situation, you should consider making it a point to access your free credit report at least on an annual basis.  It’s your right as a consumer and it’s possible you’ll find there is some discrepancies or misinformation in there.  This isn’t unusual and can negatively impact your lending ability and the rates you get when you do take out loans.  Correcting an inaccurate credit history can save you literally thousands of dollars in the long run.  So why not take a few minutes to get your free credit report and review it.  At the very least it will provide you peace of mind knowing everything is in order.  And if you are planning on making a large purchase within the next 2 years now can be a great time to start making improvements to your credit score.

The Average Credit Score

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The average credit score is a numeric calculation used to decide who gets home loans at what interest rate. If this magic number is high enough, prospective home buyers get to move into their beautiful new home. These lucky buyers have low interest rates making home ownership less expensive. However, if this number is too low, the borrower buys a house with a higher interest rate or a we-are-story letter from the lender. By understanding how the three different credit reporting bureaus work, consumers use this information to increase their credit worthiness and save money.

What Do The 3 Credit Bureaus Use?

There are three credit reporting bureaus in the United States. These are Experian, Equifax and TransUnion. Information about consumers is relayed to one, two or all three of these statistic keeping businesses. This information includes:
• Mortgages
• Automobiles loans
• Credit cards
• Revolving credit like a Sears account
• Installment payments for furniture or appliances
• Collections
• Judgments
• Foreclosures
• Repossessions
• Government liens

Credit Bureaus Use Different Numeric Scores

Each credit bureau records incoming information and issues a numeric score based on the data collected. Although these scores are commonly called FICO, each bureau has its own format, range and name.
Credit Bureau    Score Name    Numeric Range
Experian                 FICO                  330 to 830
Equifax                  Beacon               350 to 850
TransUnion          Emperica             300 to 850

Credit Bureaus Use Different Information

Unfortunately, not all bureaus receive the same information on each borrower. Lenders, credit card companies and other credit issuers may only report consumers’ paying habits to one or two of these bureaus. This difference in information transmitted is one reason credit scores differ from agency to agency.

How Credit Scores Are Calculated

Each reporting agency uses the same formula to analyze consumers paying habits. These are:
• 35%  payment history,
• 30%  credit utilization or the amount of credit used compared to the amount of credit  available
• 15%  the age of credit, a credit card account that is 10 years old is worth more than a one year old credit card,
• 10%  recent credit applications; these remain on the report for two years and
• 10%  the mix of consumer credit with higher points combining mortgage, auto and credit card.

Each financial event in the consumer’s life has an impact on this credit score. On-time payments add points while late payments deduct points. How many points are added or subtracted is a closely guarded secret and one reason for discrepancies between companies. The other has to do with value systems.

Even a 30 day late payment on a FICO score of 680 can drop the score 60 to 80 points while bankruptcy lowers that score 130 to 150 points. A person with a higher FICO would be penalized even more for the same actions. A 30 day late payment may drop the score 90 to 120 points while a bankruptcy would cause this number to plummet 195 to 225 points.

Computing the Average Credit Score

Although many credit issuers only use a score from one company, others like banks and financial institutions get this information from all three credit reporting bureaus. Armed with this data, they either average the three numbers or take the middle amount. For example:

Customer          TransScore  EquifaxScore     ExperianScore     Average    Middle
John                     750                 680                     720                   717          720

If the lender required a score of 720 to get the loan and averaged the three credit scores, John would not qualify. However, if the lender used the middle score which was 720, John would qualify for the loan.

National Average Credit Score

According to a recent report, the national average credit score in January 2011 was 692. People with scores 750 and above are rated excellent. People earning scores between 680 and 750 have a very good rating and qualify for home loans. However, some lenders require borrowers to have scores of at least 720. People with scores below 550 have trouble getting financing for almost anything.

Improving Your Score

There are two ways to improve credit: checking you free credit report once or more per year to make sure they contain only up-to-date and accurate information and handling finances wisely. Many times information on these reports is wrong. Problems include:
• missing accounts
• wrong information on existing accounts including payment status and balances
• paid off accounts are still active
• accounts belonging to someone else
• judgments, foreclosure, repossession or bankruptcy not the consumer’s

Consumers need to inspect all three reports and send a letter to the bureau showing incorrect data. Every individual is allowed one free credit report a year from each of these bureaus. Over time, anyone can improve his or her credit scores by doing the following:
• pay bills on time,
• keep credit card debt to 30% or less of the credit card limit,
• keep older credit card accounts active,
• refuse new credit and
• use different types of credit like automobile or other installment loans, home mortgages and credit card accounts.

These numeric calculations on financial responsibility are important. Whether someone arranging credit uses just one score from Equifax, Experian or TransUnion or collects scores from all of them, higher numbers are better. Most lenders use the average credit score of all three to decide the credit worthiness of the borrower. Although consumers do not have control over how their financial history is analyze and calculated, they can improve this all-important number by paying bills on time, reviewing their reports and handling credit wisely.

How To Dispute Credit Report Error And Repair Your Credit Score

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Credit report errors are far more common, with nearly 70% of credit reports coming with errors. These errors can have a detrimental impact on your overall credit score, costing you higher in interest rates on loans and mortgages, job opportunities and other crucial facets of your life. Therefore, you need to know how you can dispute credit report error in order to fix credit and have a better score. First, you need to obtain your annual free credit report. You can do that thru annualcreditreport.com. Get all 3 credit reports because the information contained in one file is often be different from the other two.

So, what are the common credit report errors?
•  Identity theft, where someone uses your name to open and run an account
•  A retailer or a creditor misfiling information, especially about your credit card transaction
•  Inaccurate postings claiming that you missed some payment
•  Simple mistakes that confuse your name with a family member’s name or a stranger with the same name as yours
•  Double listing your loan information
•  Absence of some vital positive information

All these errors can have a severe impact on your overall credit score hence you need to dispute and have them corrected.

Importance of disputing your credit report errors

As already mentioned, errors, especially those in the form of negative items in your credit report, can significantly harm your credit score. Thus, apart from lowering your chances of securing loans, they can also affect your interest rates on insurance cover, mortgages and loans. A poor credit score resulting from errors in your report can also ruin your chances of securing any formal employment. In addition, the psychological trauma that comes with a bad credit score can be very devastating. In other words, a bad credit report courtesy of errors can affect the overall quality of your life, leading to frustrations and resentments. This is why you need to check your credit report regularly, identifying and fixing errors that may appear to be lowering it in order to have an impressive report.

Step-by-step tips on how to dispute a credit report error

Having known the kind of credit report errors that you are likely to encounter, you need to know what you should do once you have spotted them. First off, you need to know that it is within your right to dispute any errors that are appearing on your credit report. As such, the credit bureaus as well as your creditors are required by law to investigate every credit report dispute, including the source of the error. Therefore, if you discover an error in your report, you need to contact the credit bureaus that sent you the report informing them of the errors that you have identified in the report. These can be TransUnion, Equifax or Experian. If the error came from two or three of the bureaus, then you need to contact each of the bureaus that issued the erroneous report. Here is a step-by-step process of what you should do.

i. Get all the relevant information
The credit bureau will need proof that your credit report has errors. Therefore, you need to gather all the relevant documents, both original and photocopies, to back up your claims. You need to make a copy of your credit report highlighting all the erroneous entries that you want corrected. In addition, you need to know all your rights, incase the credit bureau agent or creditor tries to undermine and dismiss your dispute. Unless the credit bureau or creditor has valid reasons to justify that you are making frivolous claims, they are required by law to investigate and correct your claims within 30 days.

ii. Contact the credit bureaus that issued the report
Using a certified mail or letter, you need to contact the credit bureaus that issued the erroneous report. You need to highlight the error and why you believe this information is inaccurate. In your letter, include copies of your documentation to justify your claims. Never send the original documents. Also in your letter, ask the credit bureau to investigate and correct the errors. Ensure that you send separate letters to each of the bureaus that sent erroneous reports.

iii. Contact your creditors
While the credit bureaus are investigating your claims, ensure that you contact your bank, lenders, insurance company, mortgage company the credit card company and any other entity that provided inaccurate information to the credit bureaus. Send to these companies copies of everything that you sent to the credit bureaus, including a copy of your letter of dispute. In your letter to these entities, ask them to provide you with the records of the transactions that you are disputing in order to have them in your records.

Under the Fair Credit Reporting Act (FCRA) both the credit bureau and the entity that provided the inaccurate information must investigate and correct all the justifiable errors in your report. This should be done within 30 days from the time you file your complaint. Once the credit bureaus have received your letter of dispute, they will forward the information to the entities that provided inaccurate information. These entities will then have to investigate the disputes to figure out what went wrong. After their research, and establishing the source of error, they will provide the correct and accurate information to all the three credit bureaus in order to make changes to your credit report. Even if there is no error, these entities will still communicate to the credit bureaus, justifying their position and why they feel the disputed item should remain in your report.

Once the credit bureaus have received corrected information, they will provide you with an updated credit report, indicating all the corrections that have been effected. Once an error has been removed from your report, it cannot reappear again.

It is important that you look at your credit report at least once every year. This is worth your time and effort since it directly affects your credit score. A poor report courtesy of simple errors can cost you thousands of dollars in high interest rates on insurance, mortgage and loans. While correcting these errors can be stressful and time consuming at times, you need to remain focused in resolving them in order to fix credit and have a good score.