Credit reports explained
I have a copy of my credit report. What should I be
Check for late payments and credit cards you no longer use that
you never closed out. Most importantly, look for any incorrect information
on your credit report.
If you find a mistake -- an account that isn't yours or a disputed
amount -- you'll need to fill out the form that comes with the report,
or follow the instructions on the explanatory sheet.
"You're guilty until proven innocent in the world of FICOs,"
says Michael Feldman, a co-founder of MortgageIT.com. "It's
not always your fault, and even if it is, usually there's a very
good explanation. Once you're in the mortgage process, you can't
get it removed. You have to explain it to the bank underwriter.
If you can't prove it, it results in a lower score, a higher rate,
or a decline."
How can I cleanup my credit report?
The general guidelines for cleaning up your credit report, says
Feldman, include paying your bills on time, limiting the amount
of outstanding credit, and resolving outstanding bills.
"I see this all the time," Feldman says. " A person
has a $100 doctor bill and they say, 'I'm not paying it out of principle.'
I say, 'Throw your principles out the window, it's going to cost
you thousands on your mortgage.' "
Limiting the amount of outstanding credit is important even if
you've never been charged a late fee, says Victor Benoun, a mortgage
broker and author of the book, Your Castle, No Hassle.
"We think if we pay all our bills we should have perfect credit,"
he says. "That's not always the case. Say you have 10 credit
cards and they all have credit of $5,000," he says. "If
you have the maximum on all of them, even if you pay them all perfectly,
you'll have a lower score than someone with lower balances or fewer
That's not always easy, Benoun admits, in a market in which consumers
are encouraged to use credit for even things such as gas and groceries.
If you're shopping for a mortgage, though, how you handle your money
makes a real difference in the kind of loan package you can qualify
Once a judgment has been paid, will it be automatically removed
from a credit report?
Heck, no. According to Don Taylor, one of Bankrate.com's financial
experts, "The judgment will remain on your credit report for
seven years from the filing date."
He says that according to Experian's Web site, "Federal law
specifies how long negative information may remain on your credit
report. To prevent past errors from haunting you forever, most negative
information must be erased after seven years. This includes late
payments, accounts that the credit grantor turned over to a collection
agency and judgments filed against you in court -- even if you later
paid the account in full."