Thursday, December 31, 2009

Credit Reporting Guidelines

Below are some very important
credit reporting
guideline that you as a consumer should be aware of.

The Fair Credit Reporting Act (FCRA) was designed to promote accuracy and to ensure that the credit reporting agencies maintain precise information regarding consumer credit.

The Federal Trade Commission (FTC) enforces the FCRA and is the watchdog over the three credit reporting agencies. The FTC enforces fines and may shut down any business that does not operate in compliance with the FCRA.

The FTC stipulates the maximum length of time a negative item can stay on a consumer's credit report is 7 years, unless it is a Public Record. Bankruptcy and other public records may be legally allowed to remain on the credit report for 10 years.

The Credit Reporting Agencies have 30 days to investigate our challenges according to the FCRA. The agencies can verify, modify, or delete a negative item in question. If a creditor takes longer than 30 days to respond back to the CRA for their request for investigation, the information should be automatically deleted.

It is important to note that the agencies are allowed to temporarily delay sending the consumers back their updates by sending a notification within the 30 days that they have received the requests and an investigation is pending.

The FTC also regulates the Fair Credit Billing Act (FCBA), which is designed to protect consumers from inaccurate information by their original creditors. The FCBA states that the consumer is not liable for unauthorized charges and other billing mistakes by their original creditor. The FCBA also states that that the original creditor is responsible for verification of any adverse account that the consumer challenges, and also responsible for any illegal activities by third party collection agencies that the original creditor assigns the account to.

The FCBA bounds original creditors to correct inaccurate reporting of information to the credit reporting agencies.

Fair, Isaac and Company of California originally developed the concept of the credit scoring model for use by financial institutions. Today, most credit agencies and lenders calculate your credit score (FICO) based on their formula.

Credit scores are being used increasingly by potential employers as a considering factor for hiring.

Credit scores are now being used on a small scale to determine auto insurance and utility rates.

The credit score is a computation of many different factors, including payment history, proportion of debt to available credit, and amount of credit used.

The length of a consumer's credit history counts towards 15% of consumer credit scores.

A consumer's payment history counts towards 35% of credit scores.

The type of credit a consumer has open determines 10% of their credit score. The different types of credit include: secured - mortgages, unsecured/revolving - credit cards, installment - car payments and small home improvement loans.

In calculating credit scores, the amount owed is an important indicator of a consumer's credit worthiness, and equates to 30% of their credit score. If a consumer is carrying high balances on many accounts, creditors may see this as a sign of financial overextension, or possibly irresponsible credit use,  and may assign the consumer a high risk. Consumers should make every attempt to keep account balances at 35% of their allowable credit limit.

The amount of newly established credit accounts for 10% of the credit score.

The best way for a consumer with little or no credit history to establish good credit is by applying for a secured credit card and making the payments on time.

For more information go to: Credit Reporting Guidelines

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