Severe Negative Information in a Credit Report
One of the four main components of credit data in a credit report includes public record information. Public records include items such as bankruptcies, tax liens, legal judgments and other legal proceedings recorded by a court. These records are often the biggest drags on a credit score. Some of these accounts may be able to be cleared up or removed from the credit history or credit report with a little bit of work.
Most of these public records unfortunately, can not be altered or ameliorated. For example; on bankruptcies credit reports simply record the time of the bankruptcy filing and the time of the bankruptcy discharge, there is very little that can be done to improve a credit score based on new or updated information on a bankruptcy. Other accounts may have the possibility of being removed or have the damaging impact on the credit score lessened. A key element in lessening the negative impact of these accounts is removing the record altogether or having the account reflected as being paid in full and satisfied. Understanding how and why the public record is on someone’s credit history in the first place is the key to handling these accounts and clearing up a bad credit report and low credit score.
Judgments
Judgments on a credit report are the result of lawsuit that has been lost and the courts have awarded a judgment against the defending party. The lawsuit could come from a creditor such as credit card that is in default or car loan or private party in which there is a debt of money owed and the payment arrangement is in default with collection continuing to court and the end result being a judgment awarded to the party in which the funds are owed.
If you still owe money on an account that is being reported negatively and if your payment troubles are the result of unexpected job loss, illness or some other event beyond your control rather than overspending or just a casual attitude toward paying the debt, the creditor may be approachable about working with you to improve your credit record as long as it involves some sort of payment.
Generally, creditors will not seek a judgment against a consumer unless they have tried every way possible to get their money. To get a court awarded judgment the defendant must be served notice of the court date and either lose the defense or simply not defend the matter in which case the judgment is referred to as a default judgment. Judgments are time consuming and costly for the creditor to pursue and they are frequently the last cause of action and are generally not pursued on small dollar amounts.
When a judgment is awarded in the creditors favor, such as the credit card company or auto loan, the creditor will often not be very eager to work out a deal with you since they have already won the lawsuit against you. The only way to resolve these situations is to pay the amount owed. It is always best to try and settle the debt, hopefully for a lower amount, before the judgment is awarded even if that means settling right up to the court date. If a creditor has a judgment against you can still try and negotiate a lesser amount to pay.
Creditors may be receptive to this offer because it provides them with money that they have probably given up on, and it helps them recoup some of what they spent trying to collect on the account and getting a judgment. In other words, it is found money for them.
To explore this option, contact the creditor’s account manager and explain the reasons for the problem with your account and offer to resume payments if you had made them in the past, increase the amount of your payments or if possible pay the debt off altogether. Obviously, it is easier to negotiate a lower amount if the account is to be paid all at once.
Find out if the credit account manager or debt collector might be willing to settle for less than the full amount owed. Indicate that in exchange for your offer you would like the creditor to stop reporting all negative information on your account to credit bureaus or credit reporting agencies and have a release prepared for the judgment.
If your creditor agrees to vacate the judgment in exchange for payment, be sure to get that agreement committed to paper and signed. Find out if the credit manager is willing to update your credit report to show that the adverse account information is no longer verifiable. Also, ask that a notice be sent to each of the credit reporting agencies the creditor reports to asking that they delete the adverse information from your record. This approach will not work with every creditor but like all debt negotiations, it is certainly worth a try.
Tax Liens
Negotiating a deal with a taxing entity that has placed a lien on your property can be difficult. This is because the taxing entity knows that all it has to do is wait to collect the debt, when the time comes for you to sell your property they will get the money. Government workers also do not have the same incentives as private sector debt collectors for collecting delinquent bills. However it still may be worth the effort to at least attempt to negotiate a deal when there is a lien on your credit record and property.
To initiate negotiations with a taxing entity, contact the appropriate office in your area, tell them what you want to accomplish, explain the cause of the problem and there is nothing wrong with being emotional, then find out whom you need to talk with as well as the paper work you need to complete a settlement request. Should you be denied a compromise, appeal to the next level of decision making within the organizational structure of the taxing authority. Unfortunately, you will be working with a bureaucracy, so answers and assistance may be slow and difficult to obtain.
One final note if you decide to seek a negotiated compromise with a taxing entity, you may want to get the assistance of a lawyer or a firm familiar with IRS or state/local tax negotiations and the tax code. These people will know whether your tax liability is likely to be compromised, how best to approach the negotiations and which laws forms etc apply.
During the negotiations, you should try to work out a compromise for the amount of money you owe as well as a payment schedule you can meet. You also should try to have waived all or part of the interest and penalties that will have been accruing on the back taxes that created the lien.
An integral part of the settlement agreement you negotiate there should be a letter from the taxing entity to the credit bureaus recording the tax lien has been paid and satisfied.
IRS Liens
If the IRS has a lien in your credit report and on your property, it is important to review the possibility of an Offer in Compromise. The IRS tax code says that the IRS may compromise a tax liability.
An offer in compromise (OIC) is an agreement between a taxpayer and the Internal Revenue Service that settles the taxpayer’s tax liabilities for less than the full amount owed. Absent special circumstances, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement.
The IRS may accept an offer in compromise based on three grounds that doubt exists on whether the taxpayer could ever pay the full amount of tax liability owed within the remainder of the statutory period for collection, a legitimate doubt exists that the assessed tax liability is correct or there is no doubt that the tax is correct and there is potential to collect the full amount of the tax owed, but an exceptional circumstance exists that would allow the IRS to consider an OIC.
Settling and removing an IRS lien can give a tremendous boost to a credit score. Of course, working with the IRS requires a fair amount of paperwork, patience and persistence.
Public records generally contain the most severe form of negative information regarding an individual’s credit history and therefore have the greatest impact on pushing a credit score lower. It is possible to have a good credit score even with public records, the length of time since the public record was recorded will factor in as well as the amount of the debt recorded and the overall credit profile. Individuals that reestablish good credit records or maintain some good credit records while they endure the hardship of a public record may in fact have a fair to good credit score. It is always best to assess your whole financial picture; debts, assets and income before deciding which accounts to try and clear up and which method of clearing up these debts will work best for you.
What are FICO Scores
FICO scores are one of several credit scores that are used by lenders, banks, insurers, credit card companies and other companies to measure consumer risk objectively. A credit score can be created by different companies based on information in a credit report, but FICO® scores are the most used credit bureau scores in the world. According to the Fair Isaac Corporation, the creator of the FICO score, more than 100 billion scores have been sold by the company and three out of four US mortgage originations are based on a FICO score.
Most credit bureau scores are often called “FICO scores” because most credit bureau scores used in the U.S. are produced from software developed by Fair Isaac Corporation. In fact, Fair Isaac Corporation or FICO pioneered the wide spread use of credit scoring models. The FICO score is available through all of the major consumer reporting agencies in the United States and Canada: Equifax, Experian and TransUnion. But not all credit scores retrieved or sold to consumers are FICO scores.
Credit scores, including FICO scores are derived from the data in an individual’s credit report. Different credit scoring models can be used by different companies. And there are different credit scores and credit score modeling programs available. There is some significance to the fact that the FICO score is the biggest and as of now has the greatest impact in credit related decision making. The FICO score is a mathematical algorithm that is made available to the three main credit reporting agencies in a software package.
Different credit bureau scores will evaluate a credit report differently and comparing the absolute numbers between different credit bureau scores is meaningless. A higher number from one company does not necessarily mean it indicates the borrower is less of a credit risk. FICO scores currently range in value from 300-850.
The credit score, whether it is a FICO score or another model, is used primarily determine a numerical valuation on the quality of credit risk an individual presents. Credit scores are designed to be a guide to future risk based solely on credit report data. All current credit score models, including FICO scores, evaluate the data in the credit report and quantify it with a number in which the higher the number or credit score, the lower the risk.
One bit of confusion that can arise within the lending industry over FICO scores is the different named scores that are actually developed by Fair Isaac Corporation. FICO scores technically have different names at each of the credit reporting agencies. All of these scores, however, are developed using the same methods by the Fair Isaac Corporation.
Like an individual’s credit, a FICO score will change over time. As your data changes within the credit report or through the credit reporting agency, so will the credit score since it is based on the data in the credit report.
It is also important to note that since each credit reporting agency will have similar but not identical information about an individual’s credit profile, therefore the FICO score or any credit score will be slightly different from each of the major credit bureaus, Experian, TransUnion, and Equifax. This all means that an individual will have three potentially different FICO scores, one for each of the three major credit bureaus.
Remember, regardless of credit score obtained, the score is based on the information contained in the credit report. To change a score, you have to change the underlying data the score is based on. Any information not found in your credit report is not used to calculate a credit score or FICO score.
Beware of the Little Things that can Hurt Your Credit Score
Countless articles regarding credit inform consumers about the big events that can have a negative impact on their credit score. But, many consumers fail to realize all the little transactions or little known transactions that may have a fairly significant and harmful influence on their credit score.
We all now the importance of good credit and a good credit score in our society with its wide ranging impact from credit and borrowing to employment to insurance and housing and more. Most consumers are also well aware that the higher their credit score the better. And most consumers are aware or becoming more aware of the basics for keeping their credit score high. What some consumers fail to realize is all the lesser know actions that can really harm a credit score.
The basics on credit and credit score management are covered within this site as well as other sources on credit management. These are the key elements that to avoid in order to maintain a high credit score. They are the actions that can have a clear detrimental affect on your credit report and credit score. The obvious actions include late payments on credit accounts that are in a credit report such as credit card, car loans and mortgages, carrying too much credit card debt and more.
But there a lot of consumers and lending professional who do not know all of the not so obvious factors that can harm a credit score. This list reviews the so not so obvious actions to avoid as well as some actions that involve common sense but, where some consumers are not aware at just how damaging their action really is.
#1. Having credit accounts with balances near their maximum amount available. The percentage of available credit used is a key factor in determining a credit score and having a credit account, even if it is a balance transfer on a credit card to consolidate debt, at or near its total available credit limit will eat up all of the available credit and will lower a credit score.
#2. Short lengths of time between new credit accounts or having multiple credit accounts opened in a short period of time. Even consumers with good credit who open multiple accounts will find their credit score may drop due to opening new accounts in a short period of time.
#3. Having late payments accounts turn into collection accounts that in turn become accounts listed in the public records section of your credit report. Public records like judgements, liens and bankruptcies can have a big, negative impact on a credit score. These types of accounts can have a big impact even when the dollar amount is relatively small.
#4. Having too many store credit cards and too few bank credit card accounts. These accounts have a lower value as they are evaluated by credit scoring models and therefore having more of these accounts and fewer heavier weighted credit accounts can bring a credit score down.
#5. Having no recent credit activity or no recent revolving account activity such as credit card balances and monthly payments. It can actually hurt your score if you pay off your balance in full each month or simply don’t make transactions with credit. Without a monthly payment history, the credit score models have very little data to work with.
#6. Collection accounts and more collection accounts. Collections accounts may rank as one of the more obvious credit score killers, and there are now more types of accounts that are being sent to collection companies that report to credit reporting agencies which will shift a credit score lower. More and more local governments are reporting unpaid parking tickets, library fines and other delinquent fees to collections agencies which may get reported to the credit bureaus and impair a credit score.
#7. Creditors showing delinquent credit records that normally don’t report to credit reporting companies are now reporting in greater numbers. This can be especially true on those customers with a sketchy payment history. The biggest example of this change is the utility companies such as the electric company, gas company, phone company, etc… More utility companies are reporting seriously delinquent accounts as well as customers that are simply 30 days late to the credit reporting agencies which is definitely going to hurt an individuals credit score.
#8. Excessive inquiries. Every time someone looks at an individuals credit report, it is considered as an inquiry and stays with the credit history. Too many inquiries can lower a credit score since it is indication of someone opening more credit and incurring more debt.
And don’t forget more of the basics that will damage a credit score such as having high credit card balances, high balances relative to available credit and late payments.
What You Need to Know About Credit Counselors
Credit counseling organizations are designed for people who are so far in debt that they are facing bankruptcy. This is an important distinction. If you find yourself with poor credit and a poor credit score but are not drowning in debt, what a counselor will suggest is what you already know: be disciplined to create a workable budget and stick to it while you work out repayment plans for any creditor with which you are in arrears. Now if you have tried to do this with little success you may benefit from the service.
We all know how easy it can be to get off track and spend a bit more than we can afford to have a decently comfortable life. There are times when we don’t realize just how much credit card companies charge in interest and late fees. A nonprofit debt consolidation program or credit counseling organization will work with your creditors to reduce or eliminate late payment charges and delinquent fees.
There is another point to consider before you decide to get involved with a credit counseling or repair company. Once you are enrolled and under contract, this may show up on your credit report. With this on your report, you will most likely have trouble working out any financing or loan until you complete the contract. Credit counseling organizations can be a helpful service but make sure you understand what they can and can’t do. They will not be able to reduce the vast majority of your debt, which would require an agreement with the creditor itself. In addition, the payment arrangements they make may fall short of the contractual amount due on your credit cards and other debts. These companies, even when they agree to waive late fees, will report to the credit bureaus the late payments that will be a result of the reduced payments coming from the credit counseling organization. In these situations, your credit history and credit report will show increased delinquency levels and your credit score will most likely drop further.
The idea of a nonprofit credit counseling program should be to help the consumer become educated about how credit works and provide counseling to help them handle their finances. They also provide services to help lower the existing debt wherever possible and work with creditors to lower your monthly payments. In many cases, you will pay one monthly sum to them and they will disburse payments to your creditors. There will be a fee for this service which will be added to your payment to them each month.
If You Want to Take the Next Step
Be sure to read Need to Repair Your Credit? Understand Your Rights before you look for a credit counseling company. Most programs assess your financial situation, taking into account your monthly liabilities, expenses, and assets. They then work with your creditors to work out a payment schedule to pay down the debt. Once an agreement is in order, you will pay the credit counseling company a set amount each month and the company will in turn pay your creditors taking a piece of the payment as a fee. Just because an organization says it’s “nonprofit,” there’s no guarantee that its services are free, affordable, or even legitimate.
You can expect a start-up fee and a monthly maintenance fee, and although it may only be $10-15, this can add up fast, adding to your debt. Beware of credit counseling companies who use your first payment as the total cost of the start-up fee, which could amount to several hundred dollars.
The reason most people sign with a credit counseling company to have them work with creditors to stop those recurring fees and new late fees and penalties. These companies may not do much more than that. You still need to make the painful decisions to cut your expenses – like turning off the cable service for a period or selling a second car and taking the bus. You will still pay old late fees, interest charges, and most of the original balances on your charge accounts, as well as whatever fees the credit counseling company charges.
Reputable companies can truly help those who are in danger of foreclosure and bankruptcy. Non profit debt consolidation programs may help someone get out of debt faster or help alleviate some of the difficulty in handling credit card and debt payments as well all help educate individuals on how to handle credit and debt. Credit counseling can help those with credit issues become more educated about debt and how it affects your life, and teach you how to stay debt free. This will hopefully show you how to avoid financial problems in the future. You will receive one-on-one advice from a certified credit counselor who will work with you and your budget to design a payment plan that is unique to your situation. Credit counselors know the particulars of creditor’s rules and policies. This gives them an inside track when it comes to negotiating with your creditors.
Individuals who are jeopardy of foreclosure or need to file bankruptcy can find a state-by-state list of government-approved organizations on the website of the U.S. Trustee Program, the organization within the U.S. Department of Justice that supervises bankruptcy cases and trustees.
The term “nonprofit” does not mean free. Being nonprofit does not make them a better choice when it comes to helping you consolidate your debts. You should always do your homework and find the company and program that is right for you.
If you’re in trouble, but not on the brink of bankruptcy, consider working with your creditors directly to create a payment plan or try to consolidate debt on one single card at a low fixed rate. You’d be surprised at how many options are available to you if you take the time to look around and ask questions. The conversations are uncomfortable and debt consolidation is no fun, but remember banks and lenders want your business and will usually work with you.
What is a Credit Freeze?
A credit freeze allows an individual some control on how a consumer reporting agency allows access to your credit report and credit history. With the rise of identity theft, a “credit freeze” is a tool that can allow you to block your credit file from anyone who tries to open a new line of credit with your vital information. Anyone who has spent months, if not a year, unraveling fraudulent use of their credit will tell you that the inconvenience of putting a credit freeze on your credit file is far outweighed by the peace of mind. It is important to understand how a freeze works, what it cannot prevent, and how it can affect aspects of your financial life.
What It Is
It is a block on your credit file to prevent identity theft or unwanted credit checks. The credit freeze locks the data at the consumer reporting agency until an individual gives permission for the release of the data. It’s intended to prevent criminals and fraudsters from opening new lines of credit if vital information has been compromised. It cannot undo the damage done. It is free if you have a police report that documents a recent unauthorized use of your credit profile. If you want to do it to prevent identity theft, there will be a small fee. Some of the credit reporting agencies may also refer to the process as a security freeze.
What It Means
A credit freeze or security freeze will prevent the credit reporting company from reporting your credit file to third parties, such as credit grantors and other companies and agencies, except those exempted by law or those for whom you contacted us and requested that we temporarily lift the freeze. Since the credit freeze places a block in the process of issuing credit, new creditors, employers, and landlords will not have access to your credit report. If they make a request to view your credit report, they will simply receive a message or a code that indicates that the account has been frozen. It is important to plan ahead since the lenders almost always need to see a borrower’s credit report to grant a loan or extend credit and it will be unlikely the lender will issue a loan in the borrower’s name if they can not see the credit history and credit report. So if you do this you will not be able to obtain any new credit for a new cell phone, a car loan or anything else.
How it Works
To execute a credit freeze, you must write to the individual credit bureaus at the addresses listed below. Send your letter by certified mail. If you’re married, you and your spouse will need to send separate letters and payments to place a freeze on your accounts. There is no method to freeze all three credit bureaus in every state – though that should happen soon. So you need to contact each one and pay a separate fee.
When the credit bureau receives your letter, they have five business days to place the freeze on your account. They will give you a PIN number from your creditors, which you will need to lift the freeze in the future. You‘ll have the option of lifting a freeze temporarily or permanently, on one account or all accounts. If you choose to lift a credit freeze, you can do so by phone, using your PIN number. The credit bureaus have three business days after receiving your phone request to lift the freeze. If you think about this, waiting three more days to buy a car is not that inconvenient.
A credit freeze will not lower your credit score. If you’ve been the victim of identity theft recently, you should seriously consider a credit freeze until you get things sorted out, as it will prevent further damage to your credit score. You, your existing creditors, collection agencies working on their behalf, and government agencies are still able to access your credit report after it has been frozen.
Equifax Security Freeze
P.O. Box 105788
Atlanta, GA 30348
Experian Security Freeze
P. O. Box 9554
Allen, TX 75013
TransUnion Security Freeze
P. O. Box 6790
Fullerton, CA 92834-6790
Getting a Free Credit Report
The Fair Credit Reporting Act entitles everyone to one free copy of their credit report each year from each credit reporting companies. The law allows you to order one free copy of your report from each of these nationwide consumer reporting companies every 12 months. You may order the reports from the three nationwide consumer reporting companies at the same time or you can order two of the company’s reports or you can order your report from each of the company’s one at a time at varying times. It’s your choice.
The free credit reports is requirement mandated by federal law to provide you with a free copy of your credit report once every 12 months, if you ask for it. The three nationwide consumer reporting companies or credit bureaus, Equifax, Experian, and TransUnion, have set up a central website, a toll-free telephone number, and a mailing address to use in order to request a copy of your free annual credit report.
To order your credit report you can go to www.annualcreditreport.com or call 1-877-322-8228 or complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.
The three credit reporting agencies provide access to your free report through these means only. The process was established to comply with the Fair Credit Reporting Act, consumers are not to contact the three nationwide consumer reporting companies individually. They are providing free annual credit reports only through www.annualcreditreport.com, 1-877-322-8228, and Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.
To order your free credit report you need to provide your name, address, social security number, and date of birth. If you have moved in the last two years, you may have to provide your previous address. To maintain the security of your file, the consumer reporting company may ask you for some information that only you would know and they can verify such as the amount of your monthly mortgage payment. Each company may ask you for different information because the information each has in your file may come from different sources.
If you request your free credit report online at www.annualcreditreport.com, you should be able to access the report immediately. If you order your report by calling toll-free 1-877-322-8228, your credit report will be processed and mailed to you within 15 days. If you order your credit report by mail using the Annual Credit Report Request Form, your request will be processed and mailed back within 15 days of receipt of the request.
In addition to the annual free copy of your credit report, you may also be entitled to a free credit report if a company takes adverse action against you, such as denying your application for credit, insurance, or employment, and you ask for your report within 60 days of receiving notice of the action. The notice that will be given to you will provide the name, address, and phone number of the consumer reporting company that provided your credit report to the company that made the adverse decision. You are also entitled to one free report a year if you’re unemployed and plan to look for a job within 60 days or if you’re on welfare or if your report is inaccurate because of fraud, including identity theft. Otherwise, the three consumer reporting companies will charge you for a copy of your credit report.
There is only the one website that is authorized to fill orders for the free annual credit report you are entitled to under law, which is www.annualcreditreport.com. Any other websites that advertise offers such as “free credit reports,” “free credit scores” or “free credit monitoring” are not part of this service that is mandated by The Fair Credit Reporting Act to allow access to your credit report. In most of these case and advertisements, the “free” product comes with conditions or strings attached. For example, some sites sign you up for a supposedly “free” service that converts to one you have to pay for after a trial period. If you don’t cancel during the trial period, you may be unintentionally authorizing the company to start charging fees to your credit card.
www.annualcreditreport.com and the nationwide consumer reporting companies do not send emails asking for your personal information and for the most part do not even market the free service. If you get an email, see an internet ad, or get a phone call from someone claiming to be from annualcreditreport.com or any of the three nationwide consumer reporting companies or market a free credit report, you may just want to hang up or ignore the advertisement since there is most likely a fee associated with their service or even worse, it’s just a scam.