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Untangling the Mysteries of Credit Reporting
By Archie R. Lawhorne
Contrary to popular belief, paying your
bills on time DOES NOT guarantee a good
credit report. In fact, according to Consumer
Reports magazine, 48% of consumers have
errors in their credit files, and 12% of
those errors are severe enough to result in
credit denial.
But it's not just inaccurate reporting
that can do damage. In fact, people with
the best credit rating frequently get turned
down for loans and credit cards. How is
this possible, you ask? There are a number
of closely guarded ratios for credit card
debt and many people simply have unknowingly
crossed the line. The result? A serious
roadblock on your plans if you are considering
a major purchase like a mortgage, a car, or
a consumer loan.
How does it work?
What most people don't know is that the ratio
of debt-to-allowable-debt is typically 50%. Your
"allowable" debt is your credit limit and your
"debt" is your current balance. Here's the deal.
a.. Under 50% allowable debt ratio and there are
usually no point deductions in your credit score
a.. Under 25% is even better and your credit scores may
actually have points added for good debt management
a.. Over 50% shows poor credit habits and points are
deducted and your credit score is lowered
Points are added or deducted on a sliding scale.
This scale is based on a mathematical formula that
compares your credit to a group of people with
highly-rated credit habits. The points vary from
changes within this "highly-rated credit group",
so it is best to focus on behavior modeled after
this group. Their debt ratios are usually from
0% to 50%.
How to avoid this credit mistake
Make every effort not to exceed your allowable
debt limit. If you exceed your credit limit on
a credit card by any amount, your credit scores
can drop by as much as 50 points or more ... for
each occurrence, and for each credit card! This is
a SIGNIFICANT HIT! You could go from an excellent
rating to a poor rating very quickly.
When it comes to credit reporting, KNOWLEDGE
is indeed POWER. If you're stuck with bad
credit, all hope is not lost. You can repair
and restore your credit and keep it that way.
Sure it takes a little self education, but the
process is relatively simple.
Here's some insight that will help shed light on
some commonly asked questions:
Q) Do I have a right to know what's in my
report?
A) Yes, if you ask for it. The credit
reporting agency must tell you everything in
your report, including medical information,
and in most cases, the sources of the information.
The credit bureau also must give you a list of
everyone who has requested your report within the
past year -- two years for employment related requests.
Q) What are the various negative marks that
can appear on my credit and how bad are they?
A) The following is a list of most of the
negative items that could appear on your credit
file. They are listed in order of what many
creditors would consider as best to worst.
1.. Credit inquiries
2.. Credit rejections
3.. Late payments
4.. Past due and unpaid payments
5.. Court judgments
6.. Collections
7.. Loan defaults
8.. Repossession
9.. Foreclosure
10.. Bankruptcy
Q) Can credit inquiries hurt me?
A) Each time someone requests a copy of
your credit file this inquiry is logged and
noted at the end of your report. Anyone requesting
a copy of your credit profile will be listed under
this inquiry section of your report. Lenders
typically don't like to see a lot of inquiries
on a credit report. Excessive inquiries can lead
to a credit denial as easily as bad credit.
However, not all inquires are viewed negatively.
For example, inquiries from your existing creditors,
yourself, and the bureau are deemed "okay."
Q) Do credit reporting agencies have governmental
authority?
A) No, they do not. Instead they must report
to governmental authorities and abide by the laws
regulating their operations. Like any other business,
credit bureaus buy and sell products to make a profit.
They have no special governmental authority.
Q) Is it illegal to have accurate information removed
from your credit report?
A) Congress has already set a precedent (in the area
of student loan repayment) by making special provisions
for the removal of accurate information from individuals'
credit files by fulfilling certain criteria.
Section 609(c) (2) (E) of the NEW Fair Credit Reporting
Act signed by President Clinton in September of 1996 states,
"... a consumer reporting agency is not required to remove
accurate derogatory information from a consumer's file,
unless the information is outdated under section 605 or
cannot be verified."
Notice it states, "is not required to remove." The law does
not say that accurate information "cannot" be removed; only
that the credit bureau is not required to. There is a law
that says a creditor cannot knowingly ADD wrong information
to a person's file, but the subject of REMOVING accurate
information is mysteriously avoided.
Archie R. Lawhorne, APR, is an accredited public relations
professional, marketing writer and president of Crosspoint
Publishing Company. For information on his latest book,
"How to Repair and Maintain Good Credit", check out his
web site at: http://www.profitleader.com
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