Credit problems have become a part of our daily life and we strive best to overcome such problems. Most of us are not acquainted with the basic credit terms and so we are not in a position to understand the importance of credit. The FAQ section has been developed to help our readers gain knowledge on the importance of credit in our day to day life.
- What is credit?
- What is a credit report?
- What is a credit score?
- What is a bad credit score?
- What is a good credit score?
- Why is there a need of maintaining a good credit score?
- What is a hard inquiry?
- What is a soft inquiry?
- How to repair your bad credit?
- What is debt validation?
- What are negative listings in credit report?
- How to remove the negative listings from the credit report?
- Whatisajudgment?
- How long does judgment stay in your credit report?
What is credit?
The money that we borrow from a creditor is known as credit. The moment we borrow money from somebody, we become the debtor and the person from whom we are borrowing becomes the creditor.
What is a credit report?
Credit Report is a statement that shows our credit transactions over the last seven years. It is issued by the three credit bureaus of US – Equifax, Transunion and the Experian. As per the Federal law, each of these three credit bureaus are required to provide one free credit report each year. This report contains your personal details, credit details such as your credit history, hard inquiries, and public records such as bankruptcy and tax liens and judgments.
What is a credit score?
It is a three digit number based on the entries in your credit report. This credit score is used by the creditors to judge the creditworthiness of the borrowers. The higher is your score, the more creditworthy you are in the eyes of the borrower. It is also known as FICO score as it was developed by Fair Issac and Company. The score has a minimum value of 300 as a maximum value of 850. If you have a credit score of 720 and above, you will get the most favorable interest rates on loans.
What is a bad credit score?
A credit score of 650 is considered as a moderate credit score. Any score below 650 may be considered as a bad credit score as you may not be able to get a loan at attractive rates of interest.
What is a good credit score?
A credit score of 700 and above is considered a good credit score as you can get the most attractive interest rates on loans.
Why is there a need of maintaining a good credit score?
It is very important that you maintain a good credit score because whenever you apply for a new line of credit, the creditor checks your credit score. Apart from getting a loan at attractive rates of interest, you may require to maintain a good credit score to become eligible for an insurance policy at attractive rates of premium.
What is a hard inquiry?
Whenever you apply for a new line of credit, you authorize your creditor to pull out your credit report to check your creditworthiness. This is known as hard inquiry and may lower your credit score by 5 to 10 points. However, as per the Fair Credit reporting Act, only authorized hard inquiries should stay in your credit report. Any unauthorized hard inquiry can be removed by sending a letter to the inquirer asking them to remove the listing from your credit report. Hard inquiry stays in your credit report for 2 years from the date it gets listed in your credit report. More and more hard inquiries suggest that you are credit hungry which gives a negative impact to your credit report.
What is soft inquiry?
When you pull out your credit report by yourself to check the listings, it is known as soft inquiry and does not affect your credit score.
How to repair your bad credit?
There may be either a original creditor or a collection agency listing against an outstanding debt in your credit report which can be removed if it is not legal. In other words if you do not owe the debt, you can get it removed from your credit report. For this, you should first send a debt validation letter to the creditor or the collection agency whose name is listed against the debt. If the creditor validates the debt within 30 days from the date of receipt of your letter, you should first come to a pay for deletion agreement with the creditor and then make them agree to a repayment agreement and pay off the debt, so that as soon as you pay off the debt, the negative listing gets removed from your credit report. However, the pay for deletion agreement should always be made in writing. Now if the creditor cannot validate the debt, you can send a dispute letter to the credit bureaus telling them that you do not agree with the listing. The credit bureaus will verify it with the creditor and get it removed from your credit report.
What is debt validation?
Debt Validation is a powerful instrument against the creditors and the collection agencies who try to collect the debt illegally. For this you need to send a debt validation letter by certified mail and the creditor must send you proper validation within 30 days from the day of receipt of your letter else they lose their right to collect the debt. A proper validation must include a copy of the original loan agreement that you signed with the creditor.
What are negative listings in credit report?
Negative listings are those listings which lower your credit score. This includes hard inquiry listings, charge off listings, outstanding debt listings, Judgments and bankruptcies.
How to remove the negative listings from the credit report?
To remove negative listings from your credit report all you need to do is to send a debt validation letter to the creditors. If the creditor cannot validate the debt within 30 days from the receipt of your DV letter, you should send a dispute letter to the credit bureaus telling them that you do not agree with the listing. The credit bureaus will verify it with the creditors and will remove it from the credit report.
What is a judgment?
A judgment is a court order which allows the creditor to recover the outstanding debt either by garnishing the bank account or wage of the debtor. If you have any outstanding debt, the creditor can sue you to the court and bring judgment against you to recover the debt.
How long does judgment stay in your credit report?
A judgment stays in your credit report for seven years from the date the judgment is passed against you. A judgment may lower your credit score by as much as 100 points and so it is wise to avoid judgment.
