How Long Can a Bad Credit Report Haunt You?

A good credit report is an important financial asset to possess. A good credit report can help you obtain loans (including the big loans such as a mortgage, a car loan, and/or a college loan, to name a few), help you obtain a low interest rate on those loans, and will help you obtain favorable loan terms. Therefore, a good credit report will help you obtain loans and will help you save money by way of lower interest payments.

There are many things that you can do to your credit report that will negatively affect it. Some things are small (such as having a low credit to debt ratio, having too many credit report inquiries, and closing a credit card account, to name a few), but there are many "big" things that you can do that will severely lower your credit score.

A bankruptcy is probably the worst, one trick pony that can happen to your credit report. Before you decide to file for bankruptcy, you need to think long and hard about the benefits and penalties. The most obvious benefit is that most of your debts will be discharged (with the exception of certain debts like mortgages, student loans, and IRS liens), however, a bankruptcy also means that your credit report and your credit score will be severely damaged. By severally damages, I mean that your credit score will decrease by several hundred points.

Things such as late payments, charge offs, and collection accounts can also dramatically reduce your credit score. These things will not reduce your credit score to the same extent as a bankruptcy, but they will still do some pretty heavy damage. Therefore, you should consistently pay your monthly payments on time so these things do not happen to you and thus, will not be reported in your credit report.

Even though these things will dramatically reduce your credit score, many people may think that this is not a big deal because the information will be removed from their credit report eventually. What these people do not know is that late payments, charge offs, and collection accounts can stay on a credit report for up to seven years. Therefore, should you do things to improve your credit score during this time, those improvements will be offset by the negative information that remains. Even worse than the seven year time frame for the above listed credit report problems is a bankruptcy. A bankruptcy can stay on your credit report for up to ten years.

The point is, these problems do not go away overnight and thus, should you engage in this kind of behavior, you will pay for it for many years.

Is the Credit Rating System Fair?

The main reason that the credit rating system is fair is because each person controls his/her own credit rating. Your borrowing and payment habits are what dictate your credit rating. If you abuse your credit, your credit rating reflects the same. However, if you are a responsible credit user, your credit rating will be favorable.

Lenders need a system that can help them determine whether a person is a borrowing risk. By using the current credit rating system, lenders have some kind of barometer for measuring credit risk. Without such a system, obtaining a loan would be extremely difficult because lenders would require, among other things, years of financial records to help determine the potential borrower's creditworthiness. Our current credit rating system conveniently compiles all of a person's financial records and uses them to create a nice, neat number that lenders use to make lending decisions.

The people that complain most about our credit rating system are the people that have low credit scores. These people claim that their low credit scores are somehow not their fault. These people claim that the credit card companies kept sending them more and more credit, and that they just "had" to use this additional credit. Are these people serious? We reap what we sow. It is amazing to me that a person can abuse their credit privileges, and then complain about the penalties that are assessed as a result of their abuse. These complainers are proof that the system is fair and is effectively working. If the credit rating system was unfair, these credit abusers could continue to take advantage of their credit privileges to the detriment of responsible credit users.

Another common complaint that people make is that they have no credit score before they apply for credit. The argument that these people make is that they have never had debt, therefore, they should have a high credit score. How does this make sense? A credit score measures a person's creditworthiness. Therefore, how can one have a credit score without first having credit? This is not a hard concept to understand.

The system is not perfect, but it is fair. I have had my credit score reduced due to negative information being placed in my credit file that was not mine. I had to get the information removed by contacting the credit bureaus. I would be lying if I said that the information was immediately removed. In fact, it took a couple of months to get the information removed. I was not happy, but mistakes happen. If the system was perfect, there would be no complaints.

The point is, the system is as fair as it can be. If you feel that the credit rating system is unfair or unreliable, pay cash for everything. If you cannot afford to pay cash for everything, stop complaining about the system and use the system to your advantage. If you use your credit responsibly, you will have nothing to worry about.


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The Importance of Building a Good Credit History

There are many reasons as to why people should strive to build a good credit history. First and foremost, a good credit history is an important financial asset to possess in order to obtain the big loans (i.e. a mortgage, a car loan, and/or a college loan, to name a few) in life. Additionally, beyond qualifying for these kinds of loans, the interest that you will have to pay for any such loan is an important factor to consider when getting the loan. If your credit is good, your interest rate will be lower and thus, make the loan a more attractive option for you.

Of course, these loans will not be a concern to some people. Some people rent (however, renting a place by yourself does require a credit check, therefore, if your credit report is bad, you may be denied the lease. If you do rent and do not want to have your credit history checked, you are going to have to have roommates, or have the apartment rented in the name of another person who is willing to be the primary tenant on the lease and who trusts you enough to make the monthly payments on time.). Some people buy cars for cash, get scholarships to college, or never go to college, and some people will never take out a loan. There are not many of these people. However, if you are one, or are striving to become such a person, there is another reason as to why you should have a good credit history.

What started in a minority of companies is now basically common practice. Many companies will check the credit history of all new employee applicants. These companies believe that the credit history of a person can determine, among other things, the responsibility level of a person and the true intention as to a person’s reason for applying for a job. A bad credit history will not be the end-all factor that prevents you from getting a job, however, many companies take your credit history into consideration when determining who to hire. Do not start with a disadvantage because you have a bad credit history.

Even though some of you may think that debt is evil and that there is no possibility of you ever taking out a loan or otherwise using credit and therefore do not care about your credit history, remember that there are many companies out there that check your credit. If you do not strive for a good credit history because of the financial benefits, at the very least, a good credit history could get you the job that you want. Therefore, a good credit history is in your best interest.

The Importance of Knowing What is in your Credit Report

Many people believe that they are immune from fraudulent or incorrect information in their credit report. I, however, have experienced a phenomenon I like call “credit reporting agency stupidity.” I would like to use a less harsh word than “stupidity,” but after what I have experienced with these credit reporting bureaus, “stupidity” is the only word that accurately describes their practices.

I am named after my father, therefore, we share the same name. The only difference between my name and my father’s name is that my name has the Roman numeral “II” following my name (denoting “the second”). My social security number is different and, quite obviously, my birthday is different. One would think that any one of these differences would lead a credit reporting agency to understand that my father and me are two separate individuals. However, such is not the case.

I cannot tell you how many banks and credit bureaus I have had to contact in order to remove items from my credit report that belong to my father. It is amazing to me that a credit reporting agency with millions of dollars cannot figure out that I am a separate individual from my father. Are they so ignorant to think that nobody in this country has the same name as another person? Is not that why the government provides social security numbers so as to distinguish between the numerous people with the same name? I can only imagine the problems in the credit report of a person named “Michael Smith!”

The point is, you need to check your credit report regularly to avoid any shenanigans that the credit reporting agencies love to create. Make sure that all the information in your credit report is correct. If you find any inaccurate information (even if it is something like your current occupation or your phone number) dispute the inaccuracy and provide the correct information. Trust me, you do not want to experience “credit reporting agency stupidity.”

How Bankruptcy Can Affect Your Credit Report

A bankruptcy is probably the worst, one trick pony that can happen to your credit report. Before you decide to file for bankruptcy, you need to think long and hard about the benefits and penalties. The most obvious benefit is that most of your debts will be discharged (with the exception of certain debts like mortgages, student loans, and IRS liens), however, a bankruptcy also means that your credit report and your credit score will be severely damaged.

There are many people that advocate against using or even obtaining credit. I have actually read articles that suggest that Americans are completely ignorant as to the purpose of a FICO score, and that anybody who tries to obtain a higher credit score is a fool. In my opinion, these advocates are nuts! There is more potential harm in not having a credit score than there is in maintaining a good credit score. What does this have to do with bankruptcy? Well, if you care nothing about your credit score or credit report, a bankruptcy probable will not be a big deal for you. Your debts are discharged and off you go. However, if you are a person that realizes that a high credit score could be a great asset to possess during your journey towards achieving success, you need to know the harm that a bankruptcy will cause to your credit score and credit report.

First, your credit score will be greatly reduced. By filing for bankruptcy, you demolish your creditworthiness. You are basically telling potential creditors that you have a very high risk of defaulting on any loan, therefore, you will not qualify for most loans.

Second, if you file for bankruptcy, that bankruptcy will be reported on your credit report for up to 10 years. I would like to believe that the bankruptcy report is automatically deleted from your credit report after 10 years, but the truth is, you will probably have to contact all three credit reporting bureaus and tell them to remove the bankruptcy from your file.

Last, because a bankruptcy severely damages your credit score and credit report, you better not plan on moving or buying a car for at least 10 years. Unless you have cash to afford these things, you will either get denied for a loan flat out or your interest rate will be so high that it is not worth taking out the loan.

If your credit score and credit report are important to you, consider all of your debt management options before deciding that bankruptcy is the best choice.