If you have ever tried to obtain a loan, finance a home, purchase a car, or obtain a credit card, you have been evaluated based upon your credit rating. Your credit rating is a score used by companies to help estimate the risk the company would be taking in extending credit to you. Based upon this evaluation, a company will decide whether you qualify for a loan or service.

Although the credit bureaus are secretive about the exact equation or mathematical model they use to arrive at your numerical credit score, a number of known factors contribute to your credit rating, including:

• The length of your credit history
• The number of accounts opened
• The amount of debt you currently owe
• How diligently you make regular payments on accounts to banks, mortgage companies, finance companies and retail stores
• Information from public records such as bankruptcies, tax liens and judgments
• The number of credit inquiries made by companies

The most commonly-used credit score is the "FICO Score," which is based upon a mathematical model devised by Fair, Isaac and Company. Under the FICO model, your credit score may range from 350 to 850. Most people's scores fall between 600 and 700. The higher the score, the better credit risk you are considered to be, and the more likely companies will be to extend credit to you.

What Are The Major Credit Bureaus, And What Do They Do?

There are three major credit bureaus in the United States: Equifax, Experian, and Trans Union. These three companies gather information about your financial behavior by reviewing public records and receiving reports from creditors with whom you have opened accounts. They also use this information to calculate your credit score. Since each of the three credit bureaus operates independently of one another, they may have somewhat different information and a slightly different credit score.

The credit bureaus provide this information to companies that request it, so long as they have a legitimate business reason for the request. Companies such as car dealerships, mortgage lenders, and credit card companies use this information to decide whether or not to extend credit to you. In other words, they use your past financial behavior to decide whether you are likely enough to pay back the debt that it is worth their while to extend credit to you.

Can I Obtain a Copy of My Credit Report?

You can obtain a copy of your credit report by mail, by telephone, or online. There is usually a small charge to receive a copy of your credit report. However, if you have recently been denied credit, insurance or employment due to your credit rating, or if you are the victim of identity theft, you may obtain a free copy of your report. You may also obtain one free report a year if you are unemployed but plan to look for work in the next 60 days, or if you are on welfare. You can contact the three credit bureaus at the following addresses:

EquifaxP.O. Box 740241Atlanta, Georgia 30374(800) 685-1111For fraud alerts: (888) 766-0008Website

ExperianP.O. Box 2104Allen, Texas 75013(888) 397-3742Website

TransUnionP.O. Box 1000Chester, Pennsylvania 19022(800) 916-8800For fraud alerts: (800) 680-7289 P.O. Box 6790Fullerton, CA 92834Website

What Information Is Contained In My Credit Report?

Once you receive a copy of your credit report from the three major credit bureaus, you will discover that it contains detailed information concerning your financial history. Your credit report should contain your current residential address as well as previous addresses.

The report will show information culled from public records, such as judgments obtained against you in court. It will also include any bankruptcies you may have filed, or any unpaid tax liens. In some states this could also include late child support payments.

The report will also show any open accounts including mortgages, credit cards, and other lines of credit, including the credit limit or loan amount, the balance currently due, and any cosigners on the account. Any positive information concerning the account (for instance, the designation "Pays as agreed") will remain on your credit report indefinitely. Any negative information, such as a late payment, will remain for up to seven years. Late payments are specified to be 30-day, 60-day, or 90-day late payments. If an account has been sent to a collection company or if the debt was otherwise written off due to lack of payment, this information will also appear on your credit report.

The credit report will also show the name of every company that has pulled your credit recently, such as mortgage companies, credit card companies, or car dealerships.

How Can I Fix Bad Credit?

One of the easiest things you can do to improve your credit is to close accounts that you no longer use. When you reduce the amount of credit available to you, it can improve your credit score. It is also a good idea to reduce your credit card balances to 75% of your available credit or less. The lower, the better. Paying bills timely is one of the best ways to keep your credit in tip-top shape. Next, you should review your credit report and correct any inaccurate information reported there.

• Accurate Versus Inaccurate Information

  Unfortunately, there is no way to remove accurate negative information that appears on your credit report. Accurate information will remain on your credit report for a specified period of time (for example, most negative information will remain on your credit report and affect your credit rating for seven years.) If you have made some mistakes that are accurately reported on your credit report, be sure that those items will stay put on your credit report until their time is up. Under those circumstances, your best bet is to wait it out and make absolutely certain that you take steps to prevent your credit score from slipping further until those unsavory items fall off. However, there are ways to remove incorrect information from your credit report in order to improve your credit score.

• What Causes Inaccurate Credit Reporting?

  People are often shocked to discover that their credit report contains inaccurate information. It is crucial to realize that the credit bureaus are not government organizations, but for-profit companies that rely on court records and reports from creditors. If the information the credit bureaus receive is inaccurate, so is your credit report. Sometimes, it is simply a case of mistaken identity: your name is similar to another person's and their information has been incorrectly added to your credit report. This is especially likely to happen if you share the name of a family member (for instance, John Smith Sr. and John Smith Jr.) with whom you have shared a residence. Or perhaps a creditor did not properly document a payment you had made and reported a late payment to the credit bureaus before the error was discovered. Often, information on your credit report is simply outdated and should be updated to reflect accounts that have been paid off and closed.

• The Fair Credit Reporting Act

  The way that credit bureaus maintain and report your financial information is controlled by the Fair Credit Reporting Act, or FCRA. FCRA provides a method that allows consumers to dispute incorrect information that appears on their credit report. Once a credit bureau receives notice of the dispute from the consumer, the credit bureau has 30 days in which to investigate the dispute, during which time they are required to review and consider all relevant information that the consumer submits. If, after review, the credit bureau determines that the information is inaccurate or cannot be verified, that information must be promptly deleted from the consumer's credit report. The credit bureau must then notify the consumer of the change to their credit report.

• The Dispute Letter

  To dispute incorrect information appearing on your credit report, notify the credit bureaus in writing of the dispute. This can be sent through the mail, or conducted online through the credit bureau's website. Be sure to provide enough specific information to allow the credit bureau to adequately review your dispute. If sending the notice of your dispute through the mail, include a copy of your credit report with all of the disputed items circled, and include copies of any documents you may have to demonstrate that the disputed item is false.

  Here is a sample letter to notify a credit bureau of a disputed item:

  Date

  Complaint DepartmentEquifaxP.O. Box 674402Houston, TX 77267

  Re: NameSSN: xxx-xx-xxxxAddress

  To Whom It May Concern:

  This letter is to inform you of the following disputed items on my credit report. The disputed items have been circled on the attached copy of the report.

  I respectfully dispute the item showing a 30-day late payment and a balance of $136.00 on a charge account to a creditor identified as "ACME CO," account number xxxxx-xxxxxxxxxx. This item is inaccurate because Acme Co. invoiced me for amounts that were not owed. Acme has acknowledged the error and a copy of their letter or apology is attached.

  Based upon this error, I request that you reinvestigate this matter and delete the disputed item as soon as possible.

  Sincerely,

  Jane Smith

  How Can I Maintain Good Credit?

  Once you have repaired all of the inaccurate and outdated information on your credit report, it is essential to take steps to keep your credit score as high as possible. Unfortunately, many people do not realize all of the activities that can negatively impact their credit score, and which ones are worse than others. However, with a little know-how, you can avoid the things which are most toxic to your credit and keep your credit report squeaky clean.
  • Bankruptcy and Credit Counseling

    Most people know that a bankruptcy can wreak havoc on your credit score and will remain on your credit report years. However, most people do not realize that a Chapter 7 bankruptcy is worse than a Chapter 13 bankruptcy. (In a Chapter 7 bankruptcy, all of your debt is discharged. In a Chapter 13 bankruptcy, your creditors receive a portion of what they are owed before your debt is discharged.) Do not make the mistake of seeking credit counseling in order to improve your credit score! Sadly, credit counseling, which many people seek out to assist them in maintaining their credit, is almost as detrimental to your credit score as a bankruptcy.

  • Foreclosures

    Any foreclosure lawsuit can also make mincemeat of your credit and can prevent you from obtaining financing for a home in the future. Therefore, keeping current on your mortgage payments is one of the most important ways that you can protect your credit. Even one 30-day-late payment on a mortgage can impair your ability to obtain home financing. Therefore, treat your mortgage payments as sacred and pay them timely every month.

  • Collection Companies If a debt has been sent to collections, you may rest assured that the debt has appeared on your credit report. In fact, it may appear more than once, since the creditor and the collection company may report the debt to the credit bureaus. Therefore, it is worth the time and effort to try to negotiate a payment plan with creditors if you are not able to pay the entire debt right away. If you are able to prevent the debt from being sent to a collection company, you can prevent damage to your credit.
  • Court Judgments

    Since the credit bureaus review court files, any judgment against you can impair your credit. Therefore, if a judgment is obtained against you in court which you later pay off, make certain that the creditor files a "Satisfaction of Judgment" with the court to show that you no longer owe the debt. (A Satisfaction of Judgment is a court filing which tells the court that you have paid off the amount of the judgment.) The judgment will still appear on your credit report, but a paid judgment is less damaging than an unpaid judgment.

  • Any Payments More than 30 Days Late

    Any time you make a payment more than 30 days late, the creditor has the option of reporting the late payment to the credit bureaus. They do not always exercise this option, however, and they are not required to do so. Therefore, if you are unable to make a payment on a bill for more than a month, it will be worth your while to get in touch with the creditor and try to work out payment arrangements. If you are honest and assure the creditor of a date certain when they can expect payment, they are less likely to report the late payment.

  • Credit Pulls

    Every time a company considers extending credit to you, you may assume that they have pulled your credit report to evaluate your eligibility. A few credit pulls are normal and nothing to be concerned about. If your credit is pulled many times in a short period, however, this, too, can negatively impact your credit score. The best way to contain this is to avoid permitting companies to pull your credit score unless you are serious about requesting credit from that company. The easiest way to accomplish this is to prevent dissemination of your social security number, do not apply for a multitude of credit cards, and if you are shopping for a mortgage lender, do not permit any company to pull your credit report until you have settled on one or two companies for consideration. If you test drive a car and are asked for personal information, be sure to instruct the salesperson that they do not have your permission to pull your credit report. Otherwise, they assuredly will do so.

  • Identity Theft

    The quickest and easiest way to destroy your credit is to have your identity stolen. Therefore, guard your social security number and credit card account information as carefully as you can. If your identification or credit cards are stolen, you should immediately file a police report and also place a fraud alert on your credit report with each of the three major credit bureaus. This can be accomplished by calling each of the credit bureaus and requesting a fraud alert. This phone call should be followed by a written letter stating that you may be a victim of identity theft and that creditors should not extend credit to anyone claiming to be you until they have confirmed your identity by contacting you at the address or phone number listed on your credit report.

    If you learn that your identity has unfortunately been used to obtain credit, contact that creditor immediately to inform them of the fraud, and provide them with a copy of the police report. Taking these steps may help you to stop damage to your credit by the identity thieves and may also serve as important evidence when you attempt to repair any damage the thieves have done to your credit score.

  • Periodic Checks

    Although a multitude of credit pulls by potential creditors may hurt your chances of obtaining credit, it does not damage your credit score if you pull your credit report periodically to maintain your own credit. Pulling your credit periodically will allow you to determine whether inaccurate information is damaging your credit score, or even whether your identity has been stolen. It is recommended that you check the contents of your credit report at least twice a year.

    Although the process of calculating a credit score remains shrouded in mystery, the simple ways to improve and maintain your credit rating are not. Following these easy steps, you can guard against damage to your credit rating and protect your financial freedom.