Saturday, October 17, 2009

Credit Scores: How They're Calculated and How They Affect Your Interest Rate

Your credit score is based on how you manage the credit you already have. Credit cards, car loans, mortgage loans, student loans, and utility bills all play a part in your credit score. If you miss payments, make late payments, or default on any of these, your score will fall. Conversely, if you always pay at least the minimum payment and always pay on time, your score will increase.

Maintaining a good credit score is incredibly important. If you have poor credit, it will be very difficult to get a good interest rate on a loan for, say, a house or a car when the time comes. It can even affect how much you pay for insurance.

Federal Trade Commission's article with more info on credit scores

Credit Reports
You are entitled to one free copy of your credit report from each of the three major consumer reporting companies (Equifax, Experian, and TransUnion) once a year. Anything above that, you will have to pay for (they charge up to $9.50). In order to receive your credit report, you must contact the agencies and request that they mail it to you. Do not contact each company separately; they've set up a website and toll-free number (1-877-322-8228) together, so that you can do all your requesting in one place.

Federal Trade Commission's article with more info on free credit reports

The consumer reporting companies are allowed to report most information about your credit for up to seven years, except for bankrupcy which can be reported for up to ten years.

Federal Trade Commission's article about how to recognize credit repair scams

If you find an error on your credit report, you can dispute it with the reporting company by contacting the credit reporting company (online, by fax, or by certified mail) and identifying the creditor you have a dispute with and the nature of the error. Include verifiable information, such as canceled checks or receipts, that support your complaint. The credit reporting company must investigate your complaint
within 30 days and get back to you with its results.

If for some reason, the error does not get resolved, contact the creditor with whom you have the dispute directly and try to correct the error that way. Once it's corrected, ask them to send notice of the correction to the credit reporting company.

If the error still remains unresolved, you have the right to explain in a statement that will go on your credit report. You also have the right to issue this sort of explanation even if the issue is not a reporting error, i.e. if you were actually at fault. For example, if you did not pay a car repair bill because the mechanic didn’t fix the problem, the unpaid bill may show up on your credit report, but so will your explanation.

See also: Credit Cards main, Choosing a Card: What to Look For, Establishing Credit

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