You may be surprised at the number of people who have checked their credit reports and found inaccurate information. Finding a mistake on one or more of your reports can be frustrating, but do you know what to do if you find such an error? What inaccuracies could you find, and what happens when you dispute something on your credit reports?

A surprising number of credit reports contain errors or inaccurate information. These errors are frustrating and can have a negative impact on your score. It is a good idea to take care of them right away. Submitting a dispute to the credit bureau is the first step, but what comes next? And what effect does a dispute have on your credit score? The data in this article is from a survey conducted in September 2018 but the lessons and conclusions are the same in 2024.

Who has inaccuracies on their credit reports?

People with fair and low credit scores tend to have more inaccuracies on their credit reports. That’s around one in three. What the data does not tell you is that these inaccuracies may drag your credit scores down, even if behave responsibly with credit.

Why is disputing errors on your credit reports important?

Your credit scores are a direct reflection of the information contained in your credit reports. Few numbers impact your life as much as your credit scores. Think about it: Your credit score is used to determine so many things. For instance, it determines the interest rates that you pay on your credit cards and loans, whether you can afford to buy a new car, the type of house you can afford, and whether or not you get approved for a new apartment or a new job.

Interest rate ranges for different credit score ranks

Your credit scores impact the rate lenders offer for different kinds of loans. The interest rates for those with poor credit are substantially higher than for those with better credit. For instance, if you’re in the market for a car, you could expect a significantly lower interest rate if you have exceptional credit. However, if you have poor credit, the interest rate for the same loan would be much higher, and that’s even if you can get approved for the loan in the first place.

Interest rate comparison for excellent and poor credit

What do different interest rates mean in terms of money saved or spent? If you apply for a 30-year fixed mortgage to purchase a $244,368 house, it would benefit you to make sure that your credit is in top shape before turning in those applications. Why? Because with bad credit, the interest rate on your mortgage loan could be several percent points higher than if you have excellent credit. That may not sound like a big difference, but over the course of the mortgage, it adds up to paying nearly $100,000 more for the same house. When dealing with loans, having bad credit can literally cost you you dollars.

How to dispute an error on your credit report

There are two main ways to dispute errors: with the bureau or with the creditor.

Filing disputes with the credit bureaus

You may file a dispute directly with Experian, Equifax and TransUnion.

Under the Fair Credit Reporting Act, you can have errors removed by submitting a written credit report dispute. Once you submit your report, the relevant bureau must investigate within 30 days (another 15 days if you send in additional information). From there, the bureau notifies the furnisher or supplier of the information, who then has 5 days to dispute your claim. The furnisher must review and investigate and send their findings to the bureau. If the bureau finds the false information found in your credit report to be inaccurate or unverifiable, it will be removed or corrected. What sort of outcomes do consumers see when they dispute credit report inaccuracies?

Of the small number of consumers who filed a dispute, more than 17% received a decision in their favor. It is also worth noting that the resolution didn’t happen overnight. These disputes took an average of 60 days to resolve. Credit Sesame members fared slightly better, perhaps because Credit Sesame provides the information that makes disputing easier. Also, members tend to check their credit reports frequently, whereas non-members may not. If you do not check your credit report, you cannot know if there is an error that needs to be disputed.

Filing disputes with creditors

You can also try filing a dispute directly with the creditor or furnisher. By law, you have a right to dispute the accuracy of any information on your credit report with the company that reported the information. To do this, simply send a letter disputing the specified information the company that provided the information to the credit bureaus (the creditor) must investigate your claim. It’s a good idea to double-check the creditor’s address in case they have a specific address for disputes. The last thing you need is for your letter to go missing or for the resolution to be delayed because it takes longer to get to the right person to take action. What kind of results do people see when they take this route?

Few people file a dispute directly with the creditor. However, among those who have, filing a dispute directly with the creditor yields better and faster results than filing with the credit bureaus. Thirty-two percent of those who filed a dispute directly with creditors saw a decision in their favor, versus 17.5% who filed with the credit bureaus. What’s more, the time to reach that decision was cut in half to 30 days, rather than the 60 days it took when filing a dispute with the credit bureau. Credit Sesame members tend to have a better resolution rate, faster decision time, and are more often to file a dispute in the first place than non-members.

What happens if the dispute is not corrected?

If you are unhappy with the outcome of your dispute, you may be able to submit a brief statement (typically around 100 words) to your credit report. This statement allows you to explain the situation from your perspective. Focus on the facts related to the disputed information and avoid irrelevant details. Credit bureaus might have specific guidelines for these statements, so check with them for details. If you believe the credit reporting agency violated your rights under the Fair Credit Reporting Act (FCRA) during the dispute process, you can file a complaint with the Consumer Financial Protection Bureau (CFPB).

What can happen when you dispute something on your credit reports?

Credit Sesame member Tyler disputed errors on his credit report. This is his story. Tyler is a 45-year-old who works in construction in Des Moines, Iowa. He never really thought about his credit report until he wanted to buy a house for his family. While his wife had good credit, she did not have a high-paying job so the mortgage company required a joint application. When they ran Tyler’s credit score, they found it to be fair. Although they were denied the loan, Tyler was able to request a free credit report and found two major errors that impacted his credit score.

The process is not immediate, but Tyler was able to remedy some of the errors found on his credit report. When one came back from the credit bureau in the creditor’s favor, Tyler submitted a dispute directly with the creditor, who realized the error and removed it.

Don’t be afraid to dispute something on your credit reports

To quickly summarize, a startling number of credit reports contain errors — as many as 39%. Given the importance of your credit to your overall financial health, it is crucial to dispute any inaccuracies you may find in your credit report in a timely manner. You can file a dispute with either the credit bureau or the creditor, although filing a dispute with the creditor directly often results in better, and faster, outcomes.

If you’re concerned about your credit, you can check your credit report from each of the major credit bureaus for free. Since 2020, free reports have been available once a week at annualcreditreport.com, which is more than annually as federal law requires. You can also get your credit score for free at Credit Sesame and if you would like to monitor your credit more closely, sign up for Credit Sesame’s credit monitoring service and use our guides to help your score improve.

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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

The post What happens when you dispute something on your credit reports? appeared first on Credit Sesame.

Credit counseling is a term for a variety of services offered to consumers who find themselves buried in credit card debt. It is often used to describe both debt settlement and debt management programs offered by legitimate not-for-profit credit counselors. While each is designed to get the consumer out of credit card debt, their impact on credit scores could not be more dissimilar.

Debt settlement vs. debt management

Settling a debt is the process whereby the consumer or their representatives negotiate a payoff to a lender that’s less than the amount actually owed. For example, if you owe a credit card issuer $15,000 of defaulted credit card debt and you convince them to accept $3,000 as payment in full, then you’ve settled the debt. Consumers can negotiate settlements on their own or they can hire a third party debt settlement company who will negotiate on their behalf.

A debt management program or “DMP” is a service offered by non-profit credit counseling organizations such as the members of the National Foundation for Credit Counseling. If you have excessive credit card debt, don’t want to file for bankruptcy, and can afford to make some smaller payment amount, then a DMP might be your best bet. With a DMP, you make one monthly payment to the credit counseling organization, and they pay your credit card issuers. Most DMPs take 3 to 5 years to complete.

Impact of debt management on your credit score

There was a time many years ago when paying off a credit card through a debt management program could lower your credit scores. The credit card account was reported to the credit bureaus as being paid through non-profit financial counseling. That notation was considered negative.

That is not the case today. Going into a debt management program is benign to your credit scores. While the credit card issuer is being paid through the program, they will report you to the credit bureaus as being “paid as agreed,” which is also good for your credit scores. When you exit the program, you do so without any credit card debt and with solid credit scores, which has to be a great feeling.

Impact of debt settlement on your credit score

Debt settlement is a different story. When you settle an account with a credit card issuer, it is updated on your credit report summaries as either a “partial payment plan” or “settlement accepted by creditor.” Both of those notations are considered negative by credit scoring systems and can lower your credit scores. However, most credit card accounts that go through the process of settlement are already severely delinquent and even possibly in default. As such, the item is already being considered negative by credit scoring systems. The fact that the account is settled may not add any incremental damage to your credit scores.

Still, settlements aren’t always a bad idea. You’ll certainly save money—possibly a lot of money—by settling defaulted debts. Many creditors will take considerably less than you actually owe and agree to stop pursuing you for the remaining amount.

If you have debts that have been sold to collection agencies, then settlements are a good idea. Most debt buyers and collection agencies acquire defaulted credit card debt for mere pennies on the dollar. If you’re willing to make a lump sum payment to settle the debt, then you could get away with paying a small fraction of what you owed the original creditor.

Does checking your credit hurt your score?

Perhaps you do not have mountains of debt but are still uncertain about where you stand with your score.

Inquiries can either be hard or soft, depending on who’s pulling your credit and what they’re using it for. When a lender or business obtains a copy of your credit report in response to an application for credit, it results in a hard inquiry. The same goes for collection agencies conducting a skip trace. This means that it shows up on your credit report and is used in part to determine your credit score.

You are allowed to request an annual free credit report from the three reporting agencies. This will be counted as a soft inquiry and will not be part of your credit score calculation. It’s a good idea to be diligent and to check your score regularly to track your progress and sustain your credit.

Does closing a credit card hurt your credit?

When your credit score is calculated, it takes into account how much you are utilizing your credit. In other words, if you had a credit limit of $500 and you spent $250, your utilization ratio would be 50%. By closing a credit card, you are essentially lowering your utilization rate by lowering the credit available to you and increasing the ratio. Even if you pay off your cards, it can be a good idea to keep the credit card account open to take advantage so the higher credit limit factors into you credit utilization. That said, if annual fees outweigh the few points gained from keeping the card open then it might not be worth it to keep the account open.

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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

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Your credit score is a three-digit number that gives potential lenders or creditors a way to quickly gauge your trustworthiness as a borrower. Typically, credit scores range from 300 to 850, with higher scores translating to better creditworthiness. A better credit score is more than just bragging rights. It can make it easier for you to secure lending or financing when you need it. It can also save you a significant amount of money in the process. One method to increase your credit quickly is to become an authorized user on another person’s credit card account.

If we examine the average credit scores of individuals who have been added as authorized users on another’s account, we see the following:

Even though the authorized user strategy is a proven method of raising credit scores, fewer than 1 in 5 people have been added as authorized users. Awareness should be raised about this useful strategy so that more people can use it to their advantage.

What is an authorized user, and why is it important to understand?

Being added as an authorized user can quickly improve your credit score. There are a number of reasons that people may need help building their credit, so if you’re in this position, know that you’re not alone. Perhaps you’re young and just starting out and need to quickly establish credit to rent an apartment. Perhaps you missed a few payments, and now your credit could use some help.

In fact, adding someone as an authorized user on a credit card may improve both the primary cardholder’s and authorized user’s credit scores if both parties maintain a positive payment history and low credit utilization. However, potential negative impacts and shared responsibility should be carefully considered, emphasizing the importance of communication and trust between both parties involved.

Whatever the situation, there are some tried-and-true tactics that will help you improve your credit score quickly, and becoming an authorized user is one of them.

Still not convinced? Take a look at the numbers below.

As you can see, becoming an authorized user is a great way to quickly improve your credit score, especially if you’re starting out with less-than-great credit. For individuals who had bad credit (a credit score below 550), becoming an authorized user improved their credit score by 10% in just 30 days. Fast-forward 12 months, and their score improved on average by 30%.

Improving your credit score as an authorized user

Your credit score is determined by analyzing a number of factors, such as your payment history, the total amount of your debt, and more. Becoming an authorized user on someone else’s credit card or adding an authorized user to your credit card primarily relates to the length of your credit history.

While not the largest piece of your credit score puzzle, the length of your credit history does play a role in determining what your credit score will be. If your credit history isn’t very long-standing, becoming an authorized user on someone’s established account can lend you instant credibility and quickly improve your credit score. In addition to helping with credit history, being an authorized user can also help credit utilization, and possibly even credit mix depending on your current credit accounts.

What determines your credit score?

As we mentioned earlier, your credit score is determined by analyzing a number of factors:

Payment history (35%)

Your payment history is the single biggest factor that contributes to your credit score. This shows potential lenders how often your payments have been on time or if they have been late or missed.

Credit utilization (30%)

While this may sound complicated, your credit utilization is simply the percentage of your total available credit that you are currently using. This number is expressed as a percentage and, to keep the best score, you should keep your number below 30%.

Credit age (15%)

The age or length of your credit history also contributes to your score. To make the most of this factor, make sure to keep your oldest accounts open and in good standing.

Credit mix (10%)

Potential lenders like to see a mix of different credit types on your report, such as credit card accounts and an auto or mortgage loan.

Number of inquiries (10%)

Checking your credit score won’t hurt your account but hard inquiries, such as when you apply for a new credit card, can temporarily decrease your score. Limit the number of hard inquiries on your credit to minimize harm to your score.

Now that you know how your score is calculated, let’s take a closer look at how the average scores break down in the US in 2023

Based on the data, it seems that credit score and age are at least indirectly related, meaning that as you age, your credit score also typically improves. This could be due to a number of factors, including more disposable income and a longer credit history.

Wondering what else you can do to improve your credit score? Let’s break down some tactics you can use to make a difference quickly.

What can improve your credit score?

Before you can start to work on your credit score, you need to know the proper steps to take that will help you see an increase in your credit score.

• Check your credit report and dispute any errors. By law, each of the 3 major credit bureaus (Equifax, Experian, and TransUnion) are required to give you a copy of your credit report each year at no cost. It’s important to regularly check your credit reports to make sure the information they contain is accurate and up to date. While it may seem like a given that the information would be correct, you would be surprised at how many credit reports contain errors. In fact, as many as 35% of consumers in 2018 had errors on their credit report. These mistakes could have a serious, negative impact on their score. Carefully review your credit reports, and dispute any errors that you may find.
• Make all of your payments on time. Your payment history is the single largest factor that contributes to your credit score. As such, it is important that you do your best to always make your payments on time. Believe it or not, even just one late payment can have a big impact on your score — and can haunt you for years to come. And remember, if you find yourself in a difficult position, many creditors are willing to work with you, which can make a big difference in your credit score.
• Reduce your debt. Your credit utilization is the second largest contributing factor to your credit score. Your credit utilization is simply the percentage of your total available credit that you are using at any given time. You should always aim to keep this number below 30%; however, many of the best credit scores have a credit utilization of 10% or below.
• Become an authorized user, or add an authorized user to your account. Becoming an authorized user on the account of someone with good, established credit can give you a nearly instant boost to your own credit score. By adding you as an authorized user, your trusted friend or family member is assuming financial responsibility for any payments you may miss or risk damage to their own credit. With this in mind, it’s important that you take this tactic seriously, as it is a big responsibility.
• Diversify your credit. Having a good mix of credit types can also help to improve your credit score. If you only have credit cards, consider applying for a credit builder loan. Conversely, if you only have a student loan or an auto loan, consider applying for a secured credit card.
• Limit the number of hard inquiries. While only contributing to 10 percent of your credit score, the number of hard inquiries into your credit can — and will — affect your credit score. To help keep your score in good shape, only apply for credit when necessary. And keep in mind that checking your own credit score will not hurt your credit score, in fact it can actually help to improve it.

We talked with Credit Sesame member, Tiffany, to find out how she raised her credit score by adding her brother as an authorized user. Below is a timeline that shows how her score improved 25 points in just 3 months.

Tiffany raised her credit by adding her brother as an authorized user

25-year-old Tiffany was approached by her younger brother about adding him as an authorized user. She already had good credit and he did not have any. Knowing her brother was trustworthy, she added him in June 2018. As you can see by the timeline, because of adding him, her score rose 25 points in three months.

Tiffany saw a direct benefit by having her brother as an authorized user. Her brother also saw a benefit in that his credit displayed the payment history, credit utilization, and credit history. While her story was positive, there is also the chance of it having a negative impact if either the credit card holder or authorized user are not responsible. Think of it as two credit reports being affected by a single account, for better or worse.

Benefits of adding an authorized user to your credit card

The biggest benefit of being adding as an authorized user to a credit card account is obvious, the improvement it offers to your own credit score. The account holder’s responsible credit habits, by extension, become like your own, improving your score month after month. Usually, as an added bonus, adding an authorized is simple. Just contact your credit card company and speak to someone who can add an authorized user to your account. Most credit cards even allow you to add an authorized user through the company’s website or app. Make sure that it is an authorized user and not just an additional credit card holder. There is a difference, and an additional credit card holder may or may not have the credit card on their credit report.

Do authorized users affect your credit score?

In conclusion, being added as an authorized user to your credit card is a great way to improve your own credit score. Your credit score is calculated by analyzing a number of factors, including your payment history, credit utilization, mix of credit, length of credit history, and the number of hard inquiries into your credit. If your own credit score could use a boost in any of these areas, being added as an authorized user can help you to quickly see an improvement in your score. Simply contact your credit card company to add a user, and you’re on your way to enjoying your better credit score. Be careful to only add or be added to individual’s accounts who you trust and that you know will not put you in financial ruin.

You can get your credit score for free today and think about taking advantage of credit monitoring to ensure the accuracy of your credit reports.

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Disclaimer: The article and information provided here are for informational purposes only and are not intended as a substitute for professional advice.

The post How does being an authorized user affect my credit score? appeared first on Credit Sesame.

“John, I’m recovering from a layoff four years ago and my credit took a pretty big hit when I had to default on a couple of credit cards and my mortgage loan. My credit score according to Credit Sesame was around 560 and has since improved to about 623. The problem I’m facing is that I need a different car because I drive about 30 miles to work every day and my old clunker is about to die. I know it isn’t the best time to apply for a car loan, especially given my less than perfect credit, but I have no choice. Do I stand a chance at getting credit with my bad credit score?”

The short answer to your question is yes, you absolutely stand a chance at getting a car loan with your bad credit score. And while your 623 is considerably below the national average credit score, it’s not as bad as it could be. Let’s consider the three most popular loan and credit products, and your realistic options at being approved with bad credit scores.

Auto Loans for Bad Credit

Clearly you’re looking for an auto loan. You’re in luck as auto loans are still plentiful even for people with bad, and even horrible, credit scores. In fact, auto loans were the only loans that never dried up during the recent economic meltdown. At 623 the national average interest rate for a 60-month loan for a new car is a little over 10 percent according to Informa Research, a company that tracks rates by credit scores. You could even have a credit score in the low 500s and still qualify for a loan, albeit at over 16 percent. You may even be able to qualify for a lower rate if you’re willing and able to make a large down payment.

Credit Cards for Bad Credit

Credit cards are plentiful even for people who have poor credit scores. Most of the mainstream credit card issuers have subprime options that allow people with damaged credit to be approved. You’ll be paying north of 25 percent interest if you carry a balance so your options are going to be expensive. And, if you choose to do business with the true subprime credit card issuer then you’ll also find yourself paying annual fees and other types of fees.

Mortgage Loans for Bad Credit

I love reading articles about how “these days” you can’t get a mortgage loan unless you have nearly perfect credit and a 20 percent down payment. There was even a high profile story last October about how the former Federal Reserve Chairman was denied a loan to refinance his home loan, although he never disclosed exactly why he was denied or whether or not his credit scores or unemployed status was a reason for the bank’s adverse decision. Let’s just say the reports of the mortgage market being dry except for the borrowing elite have been horribly exaggerated.

If you talk to any mortgage broker they’ll tell you that while the process is easier if you have good credit and financials, there are still options for those with less than stellar credit report summaries and scores. In fact, as long as your credit scores are at least 620 and you don’t have a foreclosure on your credit reports in your recent past, then you’ve got a shot at qualifying. You’ll have to have a sufficient income to do so, but that’s a reasonable requirement.

At 620 you’ll pay a shade over five percent in interest on a 30-year fixed rate mortgage, which isn’t half bad considering five percent was pretty much the best deal going just five short years ago. For those of you who took out mortgage loans in 2007, you only wish you could have qualified for a loan at five percent interest. The best deal in 2007 was closer to seven percent. Point being, today’s “bad” interest rates aren’t as bad as they may seem, historically.

Certainly yes, if you had better credit you could qualify for rates below 3.5 percent on a mortgage. And while that’s only about 150 basis points better than the worst deal, when you apply that to hundreds of thousands of borrowed dollars it starts to add up. But for people to suggest that you have no options, for any form of credit, with poor credit is simply untrue.

More on Credit Scores from Credit Expert, John Ulzheimer:

How to Improve a Poor Credit Score

5 Secrets to Earning Great Credit Scores

What’s More Important Than Your Credit Score? The Factors Behind It

The post Can I Get Credit With a Bad Credit Score? appeared first on Credit Sesame.

[Learn More: What Affects Your Credit Score]

Each of these debts can be cleared once they’ve reached delinquency status, which occurs once a certain number of payments have been missed. Delinquent debts can be paid in full or you can attempt to negotiate a settlement with your creditors to pay less than what’s owed. Whether or not you’ll see a change to your credit score right away depends on a few different factors.

We looked at data from Credit Sesame members who had delinquent or collection accounts, and what their average credit scores looked like. We also examined members who did not have any accounts in collections and found that the average credit score difference was significant. Chances are, if you’re facing collections or delinquent accounts, your credit score has dropped and you need to improve it.

Check your credit score from Credit Sesame and see how you compare.

• The average credit score for Credit Sesame members who have at least one collections account is 570.
• The average credit score for Credit Sesame members who have at least one delinquent account is 551.
• The average credit score for Credit Sesame members who do not have any delinquent or collection accounts is 621.

Reporting delinquent debts

Just paying off a delinquent debt isn’t likely to affect your credit history in the short term. Once a debt has been paid or settled, the next step is making sure that the payoff is reflected on your credit report.

In a perfect credit reporting world, the account would be updated within 30 days to show that the balance has been zeroed out. However, you shouldn’t assume that a creditor or collection agency will do so automatically. The result is that it may be necessary for you to dispute the account with the credit reporting bureaus to make sure it’s updated properly.

[Learn More: Highest Credit Score]

When you initiate a dispute, the reporting bureau is obligated to investigate and resolve your claim but the process can take a few weeks. If you can provide documentation showing that the debt has been paid that can help to speed things up.

How paying off old debts affects your score

Once your account information has been updated on your credit report, your credit score should improve, right? In reality, the answer’s not quite that simple.

While the FICO scoring models are the most popular credit scoring model lenders use, your FICO score isn’t the only credit score you have. There’s also the VantageScore, developed by Equifax, Experian and TransUnion. Older versions of both FICO and VantageScore focused more on the fact that a consumer had a delinquent account, versus how much was owed. Paying off an old debt wouldn’t necessarily do much to soften the blow of the negative mark caused by the delinquency.

In the newest versions of the FICO and VantageScore credit scores, however, paying or settling your delinquent debts, specifically those that have been sent to collections, can result in a higher credit score. Both FICO 9 and VantageScore 3.0 exclude collection accounts from score calculations once they’ve been paid off.

Even if an account hasn’t gone to collections yet, knowing how to pay off collections and actually paying it off or settling has the potential to help your score in another way. (See how this Credit Sesame member removed 12 collections accounts on his own and raised his credit score by 169 points!)

It would also help to understand how to remove collections from credit report, though most commonly it is just a matter of payments and time.  Clearing a debt can impact your credit utilization ratio, which is the amount of credit you’re using versus your total credit limit. Ideally, you should be aiming for a utilization ratio of 30% or less.

Prioritizing delinquent debts

If you have multiple delinquent debts, you may be wondering whether paying them off in any particular order will affect your score. In terms of credit reporting, negative items can remain on your report for seven years from the date of the original delinquency. That includes things like late payments, charge-offs and collections.

While the immediate impact of negative items is evidenced by a significant drop in your credit score, they begin to carry less weigh as time goes on. If you have a mix of old and new collection accounts, paying off the ones that occurred most recently is going to be more beneficial to your score.

Once a delinquent debt has passed the seven-year mark, you’ll need to tread carefully when paying it off. At this point, it should fall off your credit report completely but any new activity, including a partial payment, can reactivate the account. If you’re going to tackle a debt that’s aged off your report, be aware that you might create a new account history if you’re not paying in full. In some states, making a partial payment also resets the clock on the statute of limitations (how long the creditor has to sue you for the debt).

Another detail that might be important to you is that medical collection accounts are treated differently than non-medical collection accounts in the newest scoring models. They hurt less. If all else is equal, paying off a non-medical collection account before a medical collection account should result in a greater boost to your score.

[Learn More: How to Fix Your Credit]

Settling vs. paying in full

Considering how FICO and VantageScore’s newest models view paid collection accounts, the goal if you have delinquent debts is to get your balances down to zero. Paying the debts in full is one option but settling those accounts is going to yield the same result with regard to your credit score and potentially save you a ton of money in the process.

When you settle a debt, you’re effectively asking the creditor or collection agency to accept less than the full balance owed to consider the account repaid. Depending on who the creditor is and how long the account has been outstanding, it may be possible to settle for hundreds or even thousands of dollars less than what you owe.

Once the account has a zero balance, it won’t drag down your score anymore. A word of caution about debt settlement, however. Canceled debts generally have to be reported on your taxes as income unless you qualify for an exception or exclusion. If you’re settling large amounts of debt, that could come back to haunt you at tax time.

So how will my score change?

If you’re able to pay or settle a delinquent collection account and you apply for a loan or credit card with a lender that’s using a newer credit scoring system, it’s possible that your scores are going to be higher than if the collection still had a balance. Keep in mind, however, that your score may not change at all, especially if you’ve got other negative information on your credit report.

In terms of how much you could see your score climb, it could be as little as a few points or as much as several dozen points. If you’ve recently paid off a delinquent debt or you’re planning to in the near future, you can check your free credit score right here at Credit Sesame to see whether you’ve gained any points. We use the VantageScore 3.0 model, which is one of the scoring systems that ignores zero dollar collections.

[Learn More: Improve Your Credit Score]

Paying off other delinquent debts

Obviously, collection accounts don’t represent the entire universe of possible delinquent debts. You can be behind on your mortgage, credit cards, student loans and or car loans without any of them being in collection status. Paying past due debts to a zero balance isn’t going to cause FICO and VantageScore to ignore them so you’re less likely to see a significant improvement in your scores as a result. You may earn a few points because scoring systems do consider balances on delinquent accounts, but the fact that you were late in paying in the first place won’t be erased.

Once you’ve gotten caught up on past due accounts and paid off delinquent debts, your focus should be on maintaining the health of your credit score. Paying all of your bills on time, keeping your balances low and limiting how often you apply for new credit are the most important things you can do to keep your score on track.

[Learn More: Good Credit Score Range]

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The Best Fico Score is the One Free of Charge

Many consumers have been asking whether the free credit scores on the market are accurate. Is credit karma accurate? Is credit sesame accurate? If there are difference in their credit reports which one is more accurate. To get down to the bottom, you need to understand different score models. If you follow the consumer credit scoring market then you’re probably familiar with the phrase “FAKO” score. A FAKO score isn’t an actual credit score.  Instead it’s a derogatory phrase given to any credit score that isn’t built by Fair Isaac, or a “FICO” score, specifically the FICO 8 score, the most recent of multiple versions of FICO scores. Any non-FICO score is deemed fake because it isn’t something lenders used.

The genesis of the term remains unclear but I believe it was Suze Orman who coined the phrase many years ago after she began selling FICO scores on QVC and on FICO’s website. At that time there was a very limited number of scores available for consumer purchase and the only one that was a score that lenders could use for underwriting was, in fact, the FICO score. The last several years have seen a considerable change in the credit scoring world and the term FAKO score doesn’t really apply any longer.

Today there are many credit score types available to consumers and all of them are real credit scores available for use by lenders. For example, the Experian National Risk Model score is given away for free here at CreditSesame.com. According to Experian, “many lenders and other businesses use the National Risk Model.”

The VantageScore credit score, developed by VantageScore Solutions, has been on the market for lenders to use since 2006.  According to Experian some 1,300 lenders are getting the VantageScore. That VantageScore is also commonly available for consumers.

When you combine the commercial usage volume of both the VantageScore credit score and the Experian National Risk Model score, no reasonable person would refer to that as being “FAKO.”

The question then becomes more about what score your lender will likely pull when you apply for credit. Even then the answer is unclear. The lender may pull a FICO score or they may not. You can’t control that process.

If they do pull a FICO score they will pull one of over 50 different score options currently on the market. We profiled the number of FICO scores available to lenders a couple of years ago in this infographic. Given that FICO will be rolling out a new model generation some time this year, that number is likely to balloon into the mid 60s unless one or more of the credit bureaus decommission older FICO score software.

VantageScore, conversely, has only three score generations on the market. This is a product of them being relatively young in the credit scoring market. When you add together all of the FICO, VantageScore, Experian National Risk Model and other commercially available credit bureau scores the number gets much closer to 80 than it does to zero.

If your definition of a FAKO score is any score that your lender isn’t using then pretty much every credit score is a FAKO score. If your definition of a FAKO score is any score that is not commercially available then pretty much no score is a FAKO score. At this point the term FAKO has really lost it’s place in the credit score discussion.

Because the chances of you seeing the exact numeric score a lender will see is almost zero, the next best option becomes directional accuracy. Directional accuracy refers to scores, of any type, that are close to whatever the lender ends up seeing. So, if your Experian National Risk Score from CreditSesame is 753 and the lender pulls a score of 771 then you have directional accuracy. Both scores suggested that you are a low risk borrower, which is really what providing you with a FICO score for free is all about.

More on Credit Scores from Credit Expert, John Ulzheimer:

What’s a Good Credit Score?

5 Secrets to Earning Great Credit Scores

The Importance of Monitoring Your Credit Reports

What’s More Important Than Your Credit Score? The Factors Behind It

Understanding Credit Scores & What Counts: FICO vs. VantageScore

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One of the things your credit report tracks is your payment history. A history of timely payments can help to build your score up while late payments can tear it down. If you’re focused on adding points to your score, the first step is understanding the importance of a positive payment track record.

How payment history affects your score

In a nutshell, your payment history is the single most influential component of your FICO and VantageScore credit scores. In terms of how much weight payment history carries, it accounts for 35 percent of your FICO score calculation. The VantageScore model ranks individual credit factors from lowest to highest based on how influential they are to your score, with payment history at the top of the list.

Payment history encompasses both positive and derogatory information regarding your credit accounts. On-time payments are reported to the credit bureaus along with late or missed payments. It’s the negative marks that you need to be most concerned with in terms of credit scoring.

Things that are considered “bad”, such as late payments, collections, tax liens, judgments, bankruptcies, repossessions, foreclosures, settlements, and charge offs all have a powerful impact on your score. If you have one of these items on your credit report or several of them, the odds of having a lower credit score are much higher compared to someone with a clean credit history.

To put it in perspective, a single late payment has the ability to reduce your score by anywhere from 40 to 100 points. The higher your score is at the time the late payment occurs, the bigger the reduction is likely to be.

Gauging the long-term impact

When a negative payment history is a barrier to achieving a good credit score, the question becomes how to deal with it. While that’s a simple enough proposition, the solution is a little more complicated.

Derogatory credit items are problematic because they can legally be reported by the credit bureaus for up to seven years. Certain items, such as a Chapter 7 bankruptcy filing, can linger on your credit for 10 years. Assuming any negative information contained in your credit report is accurate, the credit bureaus are under no obligation to remove them earlier than the law requires. That means you have to live with those black marks on your credit in the meantime.

There is something of a silver lining, however, in terms of how much of an impact negative items have on your score over time. Recent late payments or other derogatory information is the most damaging to your credit. The effect of negative payment history, on the other hand, begins to less as the information being reported ages.

How to Improve Credit History

When you’re facing payment history problems, your options for dealing with it are somewhat limited but there are things you can do to try and minimize the damage. First, you can contact the credit bureau that’s reporting the information to verify its accuracy.

The Fair Credit Reporting Act requires credit reporting agencies to investigate consumer disputes involving inaccurate or erroneous information. Disputes can be initiated online or in writing and the credit bureau has 30 days to verify the information. If it’s determined that the negative information was reported in error, it would have to be removed from your credit report.

Disputing derogatory credit items can be time-consuming but it can be beneficial to your score if you’re able to have negative information removed. Keep in mind, however, that without sufficient documentation to prove why the item you’re disputing is inaccurate, you may have a difficult time persuading the credit bureau to remove it.

The second avenue for rebounding from poor payment history is to commit to paying your credit accounts on time, every time going forward. This, however, is easier said than done because it requires rethinking the way you approach credit entirely. FICO published a study a few years ago that suggests most people who have poor credit will always have poor credit. If you were irresponsible with credit in the past, breaking the pattern is likely to be a challenge.

Recovery time

Reestablishing a positive payment history won’t happen overnight but seeing a change in your credit score can happen sooner than you think. If you’re making the effort to pay your obligations on time consistently and you’re not in danger of a serious financial slip-up, such as a foreclosure or repossession your credit will recover that much faster. If you can maintain good payment habits, you should see a considerable improvement within 36 months. Experiencing that boost can be just what you need to continue the journey towards 850.

The post How to Improve Your Credit Score, Starting With Your Payment History appeared first on Credit Sesame.

Judgments are considered public records, which means anyone has access to view those court filings. Credit reporting agencies commonly obtain judgment records from courthouses and place them on consumer credit report cards. These judgments are allowed to remain on consumer credit files for seven years from the filing date.

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How to Remove Judgments

Unlike most credit report entries, judgments can be successfully removed well before seven years has passed, but it’s going to take some work and luck on your part.  Here’s the lowdown on judgments, their status and how best to get them removed from your credit reports.

[Learn More: What is a Good Credit Score]

Satisfied Judgments

After a judgment has been filed against you it will start to accrue interest, just like any other debt. I’ve seen judgments double in value because of this so-called post judgment interest. If you have a judgment filed against you, the “winner” of the lawsuit—formally called the judgment creditor— is going to attempt to collect. They can do so a number of ways including wage garnishment, so you’re going to want to take care of the judgment as soon as possible.

You can pay the judgment. You can attempt to negotiate a settlement for the judgment amount. You can file bankruptcy and discharge the judgment. Or you can do nothing and let the judgment creditor forcefully collect. Regardless of how it’s done, once the judgment has been paid a “satisfaction of judgment” will be filed with the court.

Normally the judgment creditor will file the satisfaction but you can also file the satisfaction. Once the judgment is satisfied your credit reports will be updated accordingly. And while a satisfied judgment is better than an unsatisfied judgment, it’s not going to be removed from your credit reports any sooner than if it were unpaid.

[Learn More: Free Credit Repair]

Vacated Judgments

A vacated judgment is different than a satisfied judgment.  When a judgment is vacated it’s as if the judgment never existed. This is different than a satisfied judgment, which simply means the judgment has been paid.

As long as the vacated status is clearly filed with the courts you should be able to get the judgment removed from your credit reports. The credit reporting agencies do not maintain the reporting of vacated judgments, or at least they’re not supposed to do so. Reporting a judgment that has been vacated is like saying something happened that didn’t actually happen and you can make the argument that it’s incorrect credit reporting.

[Learn More: Credit Score Range]

In some cases having a vacated judgment removed is as simple as disputing the item with the credit reporting agency and providing a copy of the “order to set aside” the judgment with a letter (look up a sample letter to remove judgement from credit report).  In other cases it’s not as simple and requires you to press the issue with the credit bureaus. In fact, more than one class action lawsuit has been filed against some of the credit bureaus for not removing vacated judgments. Experian appears to be the only credit reporting agency that publicizes its policy to not report vacated judgments on its consumer credit reports.

Having your judgment set aside or vacated is the only way to possibly have it removed from your credit reports sooner than the “seven years from date filed” date.

Re-filed Judgments

Although judgments can only remain on credit reports for seven years from the filing date, it doesn’t mean they’re simply going to go away at that time.  In most jurisdictions a judgment creditor can have the judgment re-filed or “revived” before it expires, which varies state by state.  That means it’s going to get a new filing date and, you guessed it, cause it to be re-reported by the credit reporting agencies for another seven years.

[Learn More: Highest Credit Score]

The post How Long Does a Judgement Stay on Your Credit Report and How to Remove a Judgment From Your Credit Report appeared first on Credit Sesame.

There were several key points about the score that went uncovered, until now.  Here’s what you don’t know about FICO 9, but really should.

It’s not just one score

FICO 9 isn’t just one credit score, but rather a new suite of credit scores.  There are now four “flavors” of the FICO score being redeveloped by the company. They are: FICO Auto, FICO Bankcard, FICO Mortgage and a generic FICO score. And because each credit bureau gets their own suite of FICO scores each time it’s redeveloped, FICO 9 means there will be 12 new FICO scores:

4 new scores x 3 credit bureaus = 12 new FICO scores

Residential rental history counts

A few years ago Experian began adding residential rental history to their credit report summary. Recently TransUnion announced they’d be doing the same. That’s great news for consumers who have little to no credit history BUT pay their apartment rent on time and want their credit reports to reflect them doing so. All FICO score versions prior to FICO 9 did not consider rental tradelines, even if they were on your credit report. FICO 9 will consider these accounts.

FICO doesn’t determine when FICO 9 will become available

The word on the street is that FICO 9 will be available sometime in the Fall of 2014 or in early 2015. Why the varying release dates? The answer is because FICO doesn’t control when their scores will become commercially available because they don’t sell their own scores. The credit bureaus sell FICO scores. Because the FICO software is installed on the mainframes of the credit bureaus, the bureaus are the ones that will make the score available when they’re ready to do so—not FICO.

Zero balance collections will be ignored, regardless of how they got there

There still seems to be some confusion about when a collection will be ignored by FICO 9. FICO 9 will ignore all collections as long as they have a zero balance. Their press release suggests that all “paid” collections will be ignored. The assumption then became that only paid collections and not settled collections would be ignored, which is incorrect. According to FICO, any collection that has a zero balance will be ignored—regardless of whether it was paid in full or settled. The collection agency community has to love this as it acts as an incentive to pay or settle your collections.

You’re going to see radical score differences in some cases

Whenever a new FICO score is released it’s expected that your score from the new model will be different than your score from the older models. But, you would also expect them to be very similar. For example, someone who had a FICO score of 780 under FICO 8 would be expected to score slightly higher with FICO 9, and that will happen.  But, you will also see consumers with drastic differences in scores from FICO 9 as compared to any of the older score versions. Here is an example:

Joe Consumer has a pristine credit report except for several paid collections that are all less than two years old. Under FICO 8 and all older score versions, Joe would have a very poor score, perhaps even in the 500s. With FICO 9, with the same credit report, Joe could easily score above 800 because all of those collections are being ignored as they’ve been paid. The difference in scores is so radical that it tells a completely different story about the consumer. The older score suggests, “You’d be an idiot to lend this guy any money” while the new score suggests, “Bet the farm on this guy because he’s never going to miss a payment.”

The challenge for FICO is explaining to lenders which of the two scores is actually the “right” score to use for underwriting. They have to say that the newer score is the valid score because it’s their latest and greatest. But that would also suggest that the score the lender has been using for the past however many years was also horribly wrong about that particular consumer’s risk level.

Ignored collections are still on the credit report

Yes, it’s great news that collections that have a zero balance will be ignored. What nobody is talking about, however, is that the collections will still be physically present on the consumer’s credit reports until they’ve hit their seven-year reporting limitations. And while the scoring model will ignore them, lenders certainly don’t have to follow suit. It’s entirely reasonable to expect that lenders will continue to have concerns about debts that have gone to collections, despite being paid or settled. And, they can still hold those against the consumer and deny them credit or saddle them with less advantageous terms.

Image: Ted Eytan

More on Credit Scores from Credit Expert, John Ulzheimer:

New FICO Score Coming Soon to a Credit Bureau Near You

The High Cost of Having a Bad Credit Score

5 Secrets to Earning Great Credit Scores

Does Age Influence Your Credit Scores?

Ask the Expert: Can I Dispute My Credit Score?

What’s More Important Than Your Credit Score? The Factors Behind It

The post What You Don’t Know About FICO 9 (But Really Should) appeared first on Credit Sesame.

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They’re Cheaper

There are many reasons a traditional credit card is better than a prepaid debit card. First off, they’re cheaper. Don’t let anyone convince you that credit cards are expensive. There are hundreds of credit card offerings that have no annual fee and the only way you’d ever incur anything similar to a fee would be if you chose to use the card in such a way that you couldn’t pay it in full each month. Then, of course, you’d have to pay interest. Paying interest would be your choice, not the bank’s choice.

The list of fees associated with most prepaid debit cards are long and complicated. With most offerings you’ll pay flat monthly fees and then fees associated with your personal usage patterns of the card. You’ll pay a fee to activate the card, load the card with funds, use the card at an ATM, replace a lost card, place a call to customer service, pay bills online, and the list goes on and on. You don’t pay fees for any of these things with most credit cards.

With a couple of exceptions, you’re likely paying some sort of fee or combination of fees on your prepaid debit card. Don’t get me wrong as I’m not adverse to fees, but only if I’m actually getting some tangible benefit from paying them. Paying a fee to use your own after-tax money makes no sense to me especially when traditional debit cards tied to checking accounts don’t have any fees.

Your Credit Reports Cards and Scores Will Thank You

For those of you who care about your credit reports and credit scores, your use of a prepaid debit card is like a tree falling in the woods—nobody cares and nobody is listening. Prepaid debit card usage is not reported to the credit reporting agencies and does nothing, at all, to help you build or maintain solid credit reports and credit scores. Credit card usage, on the other hand, is reported to the credit bureaus and responsible use of the account will help your credit reports and scores.

Capacity, Capacity, Capacity

For those of you who don’t know what capacity means as it pertains to credit and prepaid debit cards, it means spending power. Your prepaid debit card is only as useful as the funds that are already loaded. That means unless you’re using the card for local and modest spending activity, you’re going to have usability problems.

You won’t run into the spending limit issue with credit cards as most credit cards have thousands of dollars of capacity. This will allow you to reserve hotel rooms, rent cars, make large purchases and function much more efficiently without having to worry about how much more money you have at your disposal.

The counterargument is that the limited capacity of a prepaid debit card will limit your spending and keep you out of credit card debt.  That’s absolutely true, but it’s still not a reason to be scared of using a credit card.  Prepaid debit card providers suggest that the budgetary controls of their products are a reason to use them but the value trade off simply isn’t there.

Fraud Proof

Finally, if someone steals your credit card and uses it fraudulently you won’t have to come out of pocket by even one dollar. The Fair Credit Billing Act (“FCBA”) caps your liability on credit card fraud to no more than $50. All four of the credit card networks offer zero fraud liability policies on top of the FCBA protections. Prepaid debit cards do not have the same fraud protections.

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